Buying a Second Home in the UK | Property Solvers Articles

There’s nowhere quite like home. But why limit yourself to just one?

The idea of having a second house is appealing to many, whether they want to invest in an additional income stream or simply have a holiday home to spend the summer.

But there’s more to buying a second home in the UK than having the financial means to cover the property price. In this article, Property Solvers (the homebuying company) runs through the key considerations, including mortgage, taxes and associated costs.

Rules for Buying a Second Home

Before you get serious about buying a second home, you need to consider your motivations.

The intended purpose of the additional property will affect the tax implications, the type of mortgage you need to take out and more.

Some people want to own a second home for their personal use only, while others want an investment property they can rent out or pass on to descendants.

But here are a few basic rules that apply to everyone when buying a second home in the UK:

You’ll generally need a bigger deposit than you would when buying your main residence
You’ll need to prove you can afford mortgage payments for both your existing mortgage and the second property
As with any mortgage, a good credit score and income will help you secure favourable rates.

It’s a good idea to discuss the idea with a mortgage broker, accountant / tax specialist or another property industry professional for advice about your specific circumstances.

Buying a Second Home Without Selling the First

There are different rules for buying a main residence and purchasing a second property, with less tax relief available. We’ll explain these in more detail shortly.

As a result, if you don’t need two houses, it may be beneficial to sell your main house before you purchase the second.

Let to Buy Mortgages

One of the products available to help ease the transition is a “let to buy” mortgage, which allows you to rent out your main home while buying a second home.

This can be a practical choice for those struggling to sell their current home but want to move as soon as possible.

However, it’s a fairly complex mortgage type, and it’s advisable to speak to a professional (such as a mortgage advisor) to assess whether it’s the right choice.

Buying a Second Home Mortgage

If you need to take out a second residential mortgage, the mortgage lender will generally expect more from you than they would for your first home.

Criteria includes:

A deposit of at least 25%
An income high enough to cover both your first and second mortgage repayments
A high enough credit score to reassure the lender you can cover your payments

Note that if you want to take out a residential mortgage, you won’t be able to rent the property out. We’ll cover the mortgage types that do allow you to rent shortly.

When you take out a mortgage, you’ll need to tell the lender the purpose of the second property (such as a holiday home or rental income).

Using Equity in Your 1st Home to Purchase a 2nd Home

If you’ve already built up significant equity in your first house, you may want to use that equity to buy your next property.

You can do this by remortgaging your current home, which means switching to a different mortgage. When doing so, you can increase your mortgage by the amount needed to cover a 25% deposit on the second house.

Let’s say you need a deposit of £75,000 to take out a mortgage for a £300,000 property, and you currently have £200,000 of equity in your first mortgage (with the property being worth £250,000).

You would then remortgage the first property to free up £75,000 for the deposit for the next property, leaving you with £125,000 of equity in your first mortgage.

Bear in mind this would change your mortgage repayments for your first house. Lenders consider this when working out whether you can afford a mortgage.

You should also be cautious about price movements that could negatively affect the amount of equity you have in the properties. In the example above, the debt is relatively high on the second property.

Interest-Only Mortgages

In special cases, interest-only mortgages are an option. These allow you to access more equity by reducing monthly repayments significantly.

One of the most common types is a retirement interest-only mortgage (RIO), designed for older borrowers.

Buying a Second Home in Scotland

Scotland has slightly different rules to England.

Here, there’s no stamp duty – but that doesn’t mean no extra tax on second homes.

Instead, you’ll be faced with the Land and Buildings Transaction Tax (LBTT), which is a charge on properties and land above a certain amount.

How much you pay varies on the purchase price of the property.

As well as the LBTT, buyers in Scotland must pay an extra levy on the total value of a property when purchasing the home. This is known as the Additional Dwelling Supplement (ADS), sometimes simply called the second home tax.

As for mortgages, the process is fairly similar to the rest of the UK.

It’s tougher to get approval for a second mortgage and there will likely be stricter criteria, with special initiatives for those who want to use the second property as a buy to let or holiday home.

Costs of Buying a Second Home

There are various fees associated with the mortgage, such as:

Conveyancing and legal costs
Valuation / survey fees
Mortgage arrangement fees and monthly interest (which is likely to be higher with 2nd properties)

Then there are the costs associated with upkeep and maintenance of the property, not to mention the larger expenses involved with future renovation. An extra home also means an extra set of utility, insurance and energy bills.

There’s also tax, which we’ll get to below.

Buying a Second Home to Rent

For those who want to invest in a second home to use as a rental property, there are a few additional considerations.

When using the property to generate rental income, you cannot use a residential mortgage. Instead, you need a dedicated mortgage type, with the most common being a buy-to-let mortgage.

Mortgage lenders treat this differently than a residential mortgage, and there are some additional tax considerations (see below).

An even more specialist type of mortgage is the holiday-let mortgage, which is designed for people who want to rent out a home when they’re not using it for their own getaways. Some people manage this themselves, while others work with a firm to handle it.

In both cases, you can expect costs such as stamp duty (+ the 2nd property surcharge), renovations, furnishings and legal fees.

It’s important to make sure you will earn enough rent to cover the costs.

Tax Implications of Buying a Second Home

If you thought that taxes were bad when purchasing your first home in the UK, there’s bad news – taxes rise even more if you’re lucky enough to buy a second property.

Stamp Duty Land Tax

Stamp duty is higher on a second home than a primary residence, so this may be a larger amount than you expect, especially when buying a house above the average property price.

You can check the rates of stamp duty land tax on the HMRC website.

Capital Gains Tax

Capital gains tax (CGT) is a tax imposed on the profits you earn from selling an asset. HMRC doesn’t class a primary residence as an asset – but if you have an additional property, you will have to pay capital gains tax.

Fortunately, you don’t need to worry about paying this at the time you buy a house – only when you want to sell.

Everyone has an allowance they can earn in a year before paying tax, and couples can combine their allowance.

The amount you pay depends on whether you pay income tax at a basic or higher rate. Higher or additional rate taxpayers pay more, and you can check out the latest rates on the HMRC site.

Council Tax

Don’t forget that you’ll also have to pay council tax on your second property.

If the property is furnished but not lived in, or the owner has a primary residence elsewhere, it will come under the second home bracket.

In some cases, you can get a council tax reduction, but this isn’t as easy as it once was. As of April 2024, even homes that are left alone (with no one living in them) have to pay “empty council tax”.

Section 24

Rolled out since section 24 of the Finance Act 2015, the legislation stipulates that landlords with properties in their personal names cannot claim 100% income tax relief on mortgage finance costs.

This has meant that many landlords have faced massively increased tax bills and why, as a general rule, the recommendation amongst leading accountants is to buy second properties through a Limited company structure.

Buying a Second Home to Flip It

Sometimes, people consider purchasing a secondary property in the hopes of flipping – i.e. buying a house, renovating it, and then selling it at a higher price.

However, considering all the extra costs involved in purchasing additional properties, it’s wise to be cautious about this approach.

The profitability of flipping depends highly on how healthy the property market is, and you will need to make a significant amount to be able to cover all the fees, pay tax, and still turn a profit.

When you sell the house, you may also have to cover estate agents fees, which adds to the costs further.

Getting Second Properties Right

Whether you want a buy to let property, secondary residence or holiday home, purchasing a second property in the UK isn’t something to take lightly.

With considerations like capital gains tax, increased stamp duty and more hurdles involved in taking out a mortgage, it can be an expensive endeavour.

If you’re considering buying a second home because you’re struggling to sell your main residence, consider using a property buyer instead so you don’t have to go through the bother of seeking out a buyer. Contact Property Solvers today to find out more about how we can help you secure a fast house sale.