Your guide to buying a second home and second home mortgages

There are many reasons for wanting to buy a second home. You might be looking for a holiday retreat on the coast, a city bolthole, a home for a family member, or an investment property. This guide explains what buying a second home involves and how it differs from purchasing a primary residence.

Can I buy a second home using equity?

Yes, you can use the equity in your main home to purchase a second property. You will typically need a deposit of 25% for a second home mortgage. A lender will assess if you have enough equity to cover the second home mortgage repayments. To calculate your equity, subtract the remaining mortgage balance on your primary residence from its current market value.

Does the deposit increase on a second home?

Yes, the deposit required for a second home is higher. While a standard mortgage might require a 5-10% deposit, a second home mortgage usually requires at least 25%. You can use the equity from your main home by remortgaging to fund the deposit for your second property.

What kind of mortgage do I need?

To buy a second home, you'll need a second home mortgage. These mortgages involve stricter financial checks as lenders need assurance that you can manage payments on two properties. Depending on your plans for the second property, you might need a specialist mortgage:
• Buy to Let Mortgage: If you plan to rent out the property.
• Holiday Let Mortgage: If you intend to let the property short-term to holidaymakers.

Is it more difficult to get a mortgage on a second home?

Obtaining a mortgage for a second home can be more challenging. Lenders are cautious since you'll have existing financial commitments from your primary residence. Apart from the 25% deposit, lenders will require proof of substantial income to cover both mortgages. They will also consider your age and the sustainability of your income.

How does buying a second home impact tax?

Purchasing a second home has tax implications. You will pay higher stamp duty rates compared to your main residence, and you won't benefit from the 0% rate on properties up to £250,000. The current stamp duty rates for additional properties in England and Northern Ireland are as follows:
• Up to £250,000: 3%
• £250,001 - £925,000: 8%
• £925,001 - £1.5 million: 13%
• Above £1.5 million: 15%
Capital gains tax also applies if you sell a second property at a profit. Basic rate taxpayers pay 18% on the gain. The only exemption is if the increase in value is below the annual capital gains allowance, currently £3,000.
Additionally, you will be liable for council tax on the second home unless you qualify for an exemption or discount. Check with your local council for more details on council tax exemptions.

What are the additional costs involved?

Buying a second property entails standard home-buying costs such as mortgage arrangement fees, mortgage valuation fees, conveyancing costs, and buildings insurance.

Let us help with your property search

If you’re considering buying a second home, Butters John Bee can assist you. Contact your local branch today for expert advice and support on your property journey!