The lure of a coastal holiday home or a crash pad in the city has led to more than one in 10 of us owning a second home. But there is a lot to consider before you buy. Here we look at everything from the costs, mortgage options, taxes and how to make money from buying a second home.
The amount of wealth held in second properties has increased by 50% over the past 20 years, according the Resolution Foundation’s Game of Homes report in 2019.More than one in 10 adults now owns a second property.
There are many reasons why you might be considering buying a second home. You might want:
to have a rural retreat for weekends, as well as a crash pad in the city for work
to own a home in your favourite holiday destination
It is important you know exactly what you want to get from buying a second home. You need to know what you will use the property for so you can find the right one. For example, a second home for your own use could be quite different to an investment property you plan to turn into a holiday let.
Buying a second home mortgage calculator
Once you know what you want from your second property, the next consideration is what you can afford to buy. You may be in the position to buy cash or you might need a mortgage in order to buy your second home. You can get a rough idea with our how much can I borrow calculator.
If you are still repaying a mortgage on your main home don’t worry, you can get another mortgage for a second home.
In order to get a second mortgage you will usually need to have:
A large deposit – Typically you will need to able to put down at least 25% of the value of the property
A healthy income – You will need to prove to the lender that you can afford the repayments on both the mortgage on your main home and the second mortgage.
Details of any rental income – If you plan to let out the second property you will need to provide potential mortgage lenders with details of the likely rental income
A good credit score – Lenders will want to see you are a reliable borrower before they consider you for a second mortgage
One way to raise the deposit for a second property is by using the equity you have built up in your own home. So rather than an additional mortgage, you would remortgage you current home.
You typically need a 25% deposit for a second property. With the average property price in the UK sitting at £216,092 in 2020, you would need to increase your mortgage by £54,023 to release the money for an average deposit.
The first thing to check is if you have that much equity in your home. You need to deduct the remaining amount left on your mortgage from the current value of your home to see what equity you have. For example, if your home is worth £500,000 and you have £150,000 left on your mortgage you have £350,000 of equity in your home.
If you have enough equity, then you could increase the mortgage on your main home in order to release money that you can then use to purchase a second home.
On a 25-year mortgage with a 2% interest rate, borrowing an extra 54k could increase your repayments by £229 a month.
If you are an older borrower, you might think about a retirement interest-only mortgage (RIO) to release some equity. These allow you to only pay the interest on your mortgage until you die or go into long-term care, after which time the house is sold and the loan is repaid.
What are the additional costs of buying a second home?
1. Stamp duty on second homes
When you buy a second home, your original property becomes known as your ‘primary residence’ or ‘principal primary residence’ for tax purposes. Your second home is an additional property or secondary residence.
You have to pay more stamp duty when you buy a second home than you pay when purchasing a primary residence. Stamp duty is payable on any property worth more than £40,000.
Stamp duty rates on second homes in England and Northern Ireland:
Your second home will also be liable for capital gains tax when you come to sell it, if it increases in value beyond your capital gains allowance. In the tax year 2025-2026 this allowance is £3,000. Couples who jointly own assets can combine their allowances. Capital gains tax on property is 18% for basic rate tax payers and 24% if you are a higher or additional rate taxpayer. Although there may be ways you can reduce how much you owe. Find out more with our guide to capital gains tax when selling your home.
3. Council tax on second homes
If you own a second home, the amount of second home council tax you’ll have to pay could increase significantly. Depending on where you live, your council tax bill could triple in cost. Second homes are defined as furnished homes where no one lives or the owner has a main home elsewhere. But you may be able to get a reduction if your home meets certain criteria. See our guide to council tax reductions for more information.
If you’re buying a second home with the intention of renovating it, make sure you’re fully aware of what the costs may be from the outset. You’ll also need to consider how you will pay for the work. Our guide on Home repairs and improvements is a good place to start.
Is buying a second home a good investment?
Buying a second home can be a good investment but it will depend on your circumstances. Here’s what you need to weigh up.
The pros and cons of buying a second home as an investment
Potential rental income: You may choose to let your second home out to generate some income, either as a Buy to Let or a holiday let – read on for more on this.
Lifestyle benefits: Having a second home means you’ll be able to enjoy spending time in it and use it for holidays or weekends away.
The cons:
High set-up costs: If you’re buying a second home as an investment, not only will you need to pay for the property but you’ll also have other buying costs to cover including the additional rate of stamp duty on second homes and conveyancing fees. If you’re looking at this as an investment, it could take a couple of years before you break even.
How will you fund it? Second home mortgages are more difficult to get than regular mortgages as you’ll usually need at least a 25% deposit and if you’ll have two mortgages you’ll need to prove to the lender that you can afford both.
Your money will be tied up: If you’ve invested in a second home, your money will be tied up in the property. And if you want to sell the property to release your money this could take several months.
You have two options when it comes to letting out your second home:
Buy to let: You could rent it out to long-term tenants and make it a Buy to Let property. This can be a great way of generating an income from the property. However, changes to tax rules have made it less favourable in recent years. And if you have long-term tenants, you will no longer be able to use it as a second home yourself.
Holiday let: The second option is to turn your second home into a holiday let. This option allows you to still enjoy your second home yourself but also generate an income from it when it would otherwise be sitting empty. Holiday lets have become an attractive alternative to Buy in Let in recent years as they can often be let for much more than normal rental properties. However, whether or not you’ll be able to let out your second home as a holiday let depends on how desirable the area is for holiday-makers. Find out more with our guide to turning your home into a holiday let.
Type of rental
Buy to Let
Holiday Let
Can you use as a second home?
No. Once your property has been let you won’t be able to use it as a second home.
Yes. You can choose when it will be available to let out to holidaymakers so that you can still use it.
Income potential
You’ll usually get less per week/ month than with a holiday let but when the property is let your income will be regular.
You may achieve a higher rate per week/ month. But bookings may be seasonal and you may earn less over the course of the year.
How much management will it need?
Once your tenants are in place, you’ll usually only need to get involved if there are problems to resolve. You may get an estate agency to handle this for you but you’ll pay for this service.
The property will need to be cleaned in between lets and other upkeep will need to be done such as gardening. You may get a holiday let company to do this for you but you’ll pay for this.
There are other things you’ll need to consider before letting out your second home. For example, if you have a second home mortgage, check whether your lender will allow you to let out the property. Also, make sure you have the right insurance in place. We’d recommend reading our guide to investing in property.
What are the legal & administrative considerations?
Here are the legal steps for buying a second home:
Appoint a conveyancer to handle the legal side of buying your second home. You should shop around and compare conveyancing quotes to ensure you are getting the best service at the best price.
After being instructed, your conveyancing solicitor will start working on the legal side of your purchase, such as applying for local authority searches. They’ll also raise issues with the seller’s conveyancer that need to be resolved.
Getting to exchange: Once your mortgage offer is in place (if you need one), your pre-contract enquiries have been answered, and the survey and searches have been sorted out, you are ready to exchange contracts. At this point a completion date should be set. Read more about the process in our guide How long does conveyancing take?
Legal responsibilities if you’re letting out your house: If you’re planning to let your second home out as a holiday let, there are legal requirements you must comply with and you must also keep up to date with new and updated regulations. While if you’re planning to rent it out as a Buy to Let, read more about your legal obligations in Renting out your home: The ultimate guide.
Stay on top of second home admin: It may be easy to forget about tasks that need doing if you don’t like making sure your boiler is serviced.
Buying a holiday home
Buying a holiday home in an area that you love to visit can be wonderful. You have a base there to visit year after year and when you aren’t using your holiday home, you could let it out to other tourists.
However, on the downside, any income is likely to be seasonal, you won’t necessarily be able to let it for all the time it’s available and there will be maintenance costs to cover, such as paying for your property to be cleaned between lets.
Plus, if you choose to let out your holiday home a lot, you may need to get a specific holiday let mortgage.
How you choose to run your holiday let is up to you. You can opt to have a holiday cottage firm manage it on your behalf, but they will take a large cut of your profits – typically around 20%. Alternatively, you could manage the property yourself and set up your own online listing for it. This involves a bit more work but means you can keep more of the income.
When working out how much you could make from letting out your second home don’t forget about the substantial set-up costs. You will have to recoup the cost of stamp duty, legal fees, any renovation work and potentially furnishing the property before you start to make a profit.
Let to Buy involves renting out your current home and buying a new house to live in. Here’s the financial impact of Let to Buy and the regulations you need to be aware of.
What happens to my mortgage with Let to Buy?
You’ll switch your current mortgage to a Let to Buy mortgage and take out a new mortgage on the property you’re buying. You may choose to release some of the equity in your current home to act as the deposit for the new home you’re buying. Read more about how this works in our guide Let to Buy mortgages explained
What are the tax implications?
Stamp duty: You’ll need to pay the higher rate of Stamp Duty as you’ll now own two properties. However, if you sell your previous main home within three years of buying your new home you might be able to apply for a refund of the higher tax rate you paid when you purchased your new home. Find out more in our guide Stamp duty on second homes explained.
Capital gains tax: The rules around capital gains tax are complex if you are letting out a house you used to live in. You may need to pay capital gains tax when selling the house you have let out, but the amount you’ll pay depends on how much the property has gained in value and how long you lived in it. Find more information on the government website. However, when it comes to capital gains tax advice, we recommend you speak to a financial adviser.
Income tax: Rental income counts as taxable income. This is calculated on the profit you make, so you’ll need to deduct any expenses. Also, mortgage interest payments qualify for 20% tax relief while the first £1,000 of any income from property is tax-free. The amount of income tax you pay will depend on your tax band, your other sources of income and whether the property is owned by you or a company. You may also need to pay Class 2 National Insurance in certain circumstances. It can be a good idea to get independent tax advice.
Landlord obligations
Whether you’re renting out a property for the first time or you’re an experienced landlord, you’ll have certain legal obligations that you’ll need to adhere to when renting out a property including:
Checking that your tenants have a legal right to rent in this country.
All deposits you take from tenants must be kept in a government-backed tenancy deposit scheme.
It’s a legal requirement for landlords to carry out regular gas safety and electrical checks on their property.
Landlords should make sure a range of fire safety measures are in place.
Can you afford it? Consider property costs as well as other costs of buying a second home such as conveyancing fees and stamp duty costs. Use our handy stamp duty calculator to see instantly how much stamp duty you’ll pay. If you need a mortgage, find out whether you can borrow the amount you need. It’s a good idea to get advice on second home mortgages from fee-free mortgage brokers L&C.
What’s the purpose of the property? Be clear about how you plan to use your second home. Do you want to use it for holidays or might you plan to move in when you retire? And are you hoping to let it out to generate some income? Defining how you plan to use the property will help you narrow down the home that best suits your needs.
Location: Become an expert in the property market in the area where you’re hoping to buy. Even if you’re not planning to rent your second home out right now it’s worth taking potential rental demand into account in case you change your mind in the future.
Property type: Think about the amount of maintenance the second home will need. For example, it may have a beautiful garden, but will it take a lot of time for you – or someone you’re paying – to keep it that way?
How much are the ongoing expenses? Work out how much you’ll need to pay for things like utility bills and second home council tax.
Steps to take when buying a second home
Once you’ve followed the above steps, if you still want to buy a second home, here’s how to do it.
Make an offer and get it accepted: Once you’ve found the second home you want to buy, making an offer for the right amount is key. Find out how to calculate how much to offer in How do I know I’m not paying too much? Also, emphasise your position. For example, if you’re a cash buyer this may work in your favour. Then get ready for negotiations – get tips on how to do this in our guide Making an offer – and haggling over the price. If are you worried about negotiating, you can appoint a Buying Agent.
Protect yourself in case your purchase falls through: If your offer is accepted, it’s not a done deal until you exchange contracts. So consider buying Home Buyers Protection Insurance, which helps cover elements of your legal, survey and mortgage costs should your purchase fall through.
Getting to exchange: Once your mortgage offer is in place (if you need one), your pre-contract enquiries have been answered, and the survey and searches have been sorted out, you are ready to exchange contracts. At this point a completion date should be set. Read more about the process in our guide How long does conveyancing take?
Completion day:Completion is when you pay for the property and take ownership of it. You are now free to move in.
Pay stamp duty and conveyancer fees: The final stages involve your conveyancer sending you an account, covering all their costs and disbursements, as well as the purchase price of the house and stamp duty. Your conveyancer will normally pay the stamp duty for you, and make sure the change of ownership is registered with the Land Registry.
Buying a second home and renting out the first
If you are planning to let out your current home and move into your second home you will need to talk to your mortgage lender. Some lenders do not allow you to rent out your home so you may have to remortgage onto a buy-to-let mortgage. Get help understanding your mortgage options and finding a buy-to-let mortgage
You will also need to speak to your home insurance provider to amend your policy to reflect the fact your home is being let.
Also, be aware that if you decide to sell your first home in the future, it may be liable for capital gains tax depending on how long you have been renting it out for.
Is buying a second home the best way to help a family member get on the property ladder?
Buying a second home to get a family member on the property ladder may be a more expensive way of helping than other ways.
For example, if you already own a property, the home you’re buying for your child would count as a second home so you’ll have to pay an extra 5% stamp duty on the purchase price. On a property worth £270,000, you’ll pay a stamp duty bill of £17,000.
By comparison, if you gift your child a large deposit and they buy the property, they will benefit from first time buyer stamp duty relief. Under the current rules, first time buyers don’t pay stamp duty on properties under £300,000. This means if a first time buyer buys a house for £275,000 their stamp duty bill would be £0.
Gifted deposits explained
Gifted deposits are given with the understanding that the money doesn’t need to be repaid. The person gifting the money has no rights or legal interest in the property being purchased. If parents are considering ways to help their children get on the property ladder, a gifted deposit can be the easiest way. But any gifts must be declared to a mortgage lender. And the person gifting the money may also need to provide bank statements to show the origin of the funds, as part of anti-money laundering checks. Find out more in our guide on Gifted deposits.
Alternative ways to help your child buy a house
There are some other ways you can help your child buy a house including:
Taking out a joint borrower, sole proprietor mortgage: With these mortgages, you apply with someone who’s willing to accept joint responsibility for making mortgage payments without having a legal claim to the property. With JBSP mortgages, the parent and child will both be named on the mortgage. But only the child will be named on the property’s deeds. This means the stamp duty surcharge can be avoided. However, both applicants will need to pass affordability checks to show they can afford the mortgage payments.
Guarantor mortgages: This is when someone – usually a family member like a parent – acts as a guarantor by putting up savings or their property as security. However, the risks to the guarantor can be significant. If the borrower misses payments or their house ends up being repossessed, the guarantor could lose some or all of their savings if they used them as security. While if you used your home as security, the worst case scenario is that you could lose your home. So take independent financial advice before going ahead with this. Read more in our guide Guarantor mortgages explained.
Family Offset mortgages: With family offset mortgages, the amount of interest the borrower pays is reduced by linking their mortgage deal to a family member’s savings account. There are some drawbacks though, for example the parent won’t earn interest on their savings. Plus, if the parent withdraws some of the cash, the borrower’s mortgage payments will increase. And lenders will usually put a lower limit on the amount of savings in the linked account. It’s advisable to take independent financial advice before going ahead with this.
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