13th March 2023
Buying a second home to live in or rent out is a fantastic way to give yourself some permanent, private living space elsewhere in the UK, as well as an additional income stream from short-term lets when you’re not using the property.
There are lots of reasons to consider buying a second property to rent out or live in:
You might also want to buy a second home close to your children’s preferred university, to give them the extra security of a rent-free education and/or to generate income by renting rooms to their friends.
Remember that buying a second home and renting the first is also an option if you want to relocate without selling your current property. Just remember that there might be buy-to-let implications with mortgaging a second home, depending on where you plan to live primarily.
Before we look at the second-time buyer process, is it worth buying a second home at all? If any of the scenarios listed above sound familiar, the answer is probably yes.
Mortgaging a second property is generally significantly cheaper than renting an equivalent property, and – subject to the usual market risks – almost all of the money you put in is turned into equity, with only a small amount paid in estate agency and solicitor fees, plus any interest charged on the mortgage.
While house prices can fall, over the long term UK prime property prices tend to track upwards, so that over time the capital gains cover the costs of buying a second home and leave you in profit.
The process of purchasing a second home in the UK is not significantly different from buying a primary residence; however, it can be made easier by virtue of being your second property.
For example, when buying your second home:
Even when buying a second property to live in full-time, by retaining ownership of your old property you give yourself time to take care of any paperwork without immediately losing access to your former residence.
You can buy a second home anywhere in the UK, but there are several popular second-property hotspots:
The UK’s most popular places to own a second home range from the urban to the remote, and property prices vary dramatically with the most desirable found in the Central London prime property market.
As mentioned, there are several benefits of owning a second home to live in. You get more space and somewhere to spend your free time away from any pressures at home (e.g. if you run your business from your primary residence).
There are multiple income opportunities: short-term lets and holiday stays, student accommodation and long-term capital gains.
You don’t have to stop at two properties. As your investment portfolio grows, you can place your rentals in the hands of a property management company and generate a practically hands-free secondary revenue stream.
UK stamp duty rates on second homes are usually 3% (that is, three percentage points) higher for a second home than for a primary residence – you can claim this back if you sell your previous property within 36 months.
You’ll need to pay council tax for both properties, although you may qualify for a discount on the one designated as your non-primary residence.
You’ll also pay income tax on rental income (subject to the usual tax-free allowances and tax rate bands) so for a higher rate taxpayer that’s 40-45%.
Finally, you can expect to pay capital gains tax on any increase in value when you sell the property.
Renting out your second home is a good idea if it would otherwise be empty for long periods of time, and not only because of the income you will generate.
Having a property occupied reduces the risk of a crime being committed against it (e.g. attempted burglary or arson) and can also reduce the risk of damp and stale smells.
A good property management company should be able to take care of security and claim costs for any damage from tenants, and may also arrange for cleaning and maintenance to take place between short-term lets.
In general, buying a second home performs well alongside other investment options. The UK property market is relatively stable over the long term and property valuations trend upwards, adding capital gains to rental income.
As mentioned above, the money you put into a second home is mostly turned into equity, compared with renting where the money goes to the landlord.
Of course there are risks, and the market can go down as well as up, so speak to our investment advisors if you need professional advice about whether or not you should buy a second house.
There are several ways to finance a second home:
Again, this is a complex area and if you’re not sure how to finance your second home, Black Brick’s investment service is available to help you with professional advice and support.
On the whole, the running costs of a second home are similar to those of a primary residence, with some small differences:
It all depends on how often you use the property yourself, or how often you rent it out to tenants or holidaymakers.
Finally, there may be management costs associated with putting the residence under the control of a property management company, but these are often offset by the reduced amount of time you have to spend dealing with tenants’ issues yourself.
Ultimately, owning a second home in the UK has proved to be a good investment choice over the years, which is why properties in prime locations are still in high demand.
With Black Brick’s property search service and investment advice, you can take that next step as a second-time buyer and start to build a prime portfolio that maximises your returns, both in rental income and capital gains, while giving you a second home to call your own.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.