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Checklist For Buying A Second Property

July 28, 2021

According to analysis from the Ministry of Housing, Communities and Local Government, the number of second homes being purchased in the UK had already hit a record high before the pandemic struck.

According to the data, secondary homes - whether rental or holiday lets - hit an all-time high in 2018/19 (the latest statistics available), with the number of second properties rising by 30% to 495,000 owned. This figure was sitting at 382,000 in 2013/14.

The main reasons that have likely driven buying a second property are rising incomes, rising house prices confirming the asset class of owning property, and the shift towards remote and more flexible working conditions. It could also have been influenced by the drop in value of the pound, resulting in property purchase becoming more cost effective in the UK than in Europe.

The staycation boom

During recent years, there has also been a boom when it comes to using technology-driven property letting platforms such as Airbnb. Such businesses have made the realities of second homeowners being able to generate an income from their secondary properties much easier and more attractive.

Portico Host Manager, Martin Coppens, says that while such platforms have undoubtedly revolutionised owning and generating an income from a secondary residence, managing these staycation-style ventures can result in an overwhelming amount of work, akin to a second full-time job for some:“Owning a second property can be a great way to generate additional income, but many owners do underestimate the extent of work that can be involved. Ensuring the property is clean and well-maintained, constantly checking emails and answering enquiries from a range of platforms can be hard to keep up with, so ideally it’s best to determine whether you will manage the venture yourself or enlist the services of a property management team and incorporate it into your plan,” he said.

With the country opening back up and cities resuming some level of normalcy when it comes to leisure and entertainment, now may just be the perfect time to invest in a second property in the capital. With remote working trends set to continue indefinitely, many who fled the city for more space and greenery may very well opt to continue basing themselves outside of the metro centre, and will need to rely on quality staycation options to intersperse some city-living back into their lives post-pandemic.

Read more on the Airbnb boom in our summer Airbnb update.

Checklist of considerations when buying a second property

Once you know what it is that you want from a second property, the next thing to consider is what you can realistically afford to buy. You may be in the fortunate position of being able to pay cash, but otherwise, you’re going to need to secure a mortgage. 

In order to secure a second mortgage, you will typically need to have:

  • A sizable deposit - lenders commonly require a minimum of 25% as a deposit on a second mortgage.
  • A reliable, healthy income - lenders will require proof that you can afford to service the mortgage repayments on both your current mortgage and the second one you are applying for.
  • Rental income details - If you are planning to rent the second property out, you will need to provide potential lenders with details pertaining to the likely rental income that you will achieve. You can find this out through our online rent calculator.
  • A solid credit score - lenders will need to see that you are a reliable mortgagee before they consider your application.

When comparing costs, don’t forget to find out and factor in:

You should also consider which locations are in demand and look at regeneration schemes to discover up-and-coming areas. Check out our ‘Where To Buy Property in London in 2021’ analysis.

Read More: Is Now The Time To Remortgage?

Read More: Can I Move House And Keep The Same Mortgage?

Buying a second property using equity

One way to raise the funds for a second mortgage deposit is to use the equity you already built up in your primary property.

The first thing to do, of course, is to check if you have sufficient positive equity in your property. This is a simple calculation - if the current valuation of your property is more than the outstanding mortgage owing on it, then the difference represents the equity you hold. For example, if your property is worth £400,000 and you have £250,000 left owing on your mortgage, then you have £150,000 of equity in your home.

What are the additional costs of purchasing a second home?

When you buy a second property, your original property is then known as your ‘primary residence’ for taxation purposes, and your second property becomes known as your additional or ‘secondary residence’.

1. Stamp duty

The stamp duty costs are higher on second property purchases. As of 1st July 2021 and until 30th September 2021, second home stamp duty rates for England and Northern Ireland are as follows:

  • 3% for properties up to the value of £250,000
  • 8% for properties over £250,000 to £925,000
  • 13% for properties over £925,000 to £1.5 million
  • 15% for properties over £1.5 million

2. Capital gains tax

A second property will also attract capital gains tax when the time comes to sell it. The current capital gains tax allowance is £12,000 per person, and any increase in value beyond that will result in up to 18% (or 28% or higher if you are an additional rate or higher tax payer) in capital gains taxes to be paid.

3. Council tax

Don’t overlook additional council tax fees. These are payable on second homes when defined as properties which are furnished but not lived in, or whereby the owner holds a primary residence elsewhere. If your home meets certain criteria, you may be eligible for a council tax discount, so it’s important to ascertain that in advance and factor it in.

Related: HMO Meaning And 2021 Guide

Letting out your second home

When it comes to letting out your second home, you have two options:

  • You could rent it out long-term to tenants and set it up as a ‘buy-to-let’. This setup can be a great way to generate income from the property, but it does come with additional mortgage and tax implications to consider.
  • Alternatively, you could turn the property into a holiday let. This option would allow you to continue enjoying your second property when you wish, but also have it generate an income for you when it would otherwise be left empty.

We are seeing an increasing number of landlords utilise both the above options through Airbnbing their property with us at Portico Host right up until we find them a suitable long-term tenant. In fact, 90% of landlords we surveyed said they would use Airbnb for short-lets.Read More: Airbnb Mortgage Rules: What You Need to Know

Read More: Airbnb FAQs

Getting in on the staycation boom

Should you choose to purchase a second property to use as a holiday let, how you run it is entirely up to you. You could opt to self-manage it, including setting up your own listings, but this does involve a lot of work, so it’s not something to head into with blinkers on.

Alternatively, you could engage with property management specialists who can assist you in the full process - from marketing, booking and managing all aspects of your holiday let, right through to cleaning and maintenance services. Here at Portico, we offer a full comprehensive plus package to assist with staycation and Airbnb lettings, so be sure to check out all the inclusions we offer when making your decision as to what best suits your needs.

Get in touch if you’re considering Airbnb, or purchasing or letting out a second home

Buying a second property can certainly be a great way to have your cake and eat it - offering you the possibility to not only enjoy it for yourself when you’re there, but make it work for you when you’re not. Alternatively, setting it up as a ‘buy-to-let’ can be a great way to build up a nest egg for the future, so long as you go into it fully informed of all the associated costs and considerations.

If you are thinking of buying a second property, then get in touch and see how Portico can assist you! Whether it be for finding the right property, considering your letting or Airbnbing options, getting lending advice from our mortgage experts at Portico Finance, or looking into engaging us for your property management needs, we’d love to hear from you!

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