A second home in the UK is an excellent option for anyone who wants to increase their housing equity. With the continuing growth of the country’s economy and rising demand from international buyers, the property market looks promising, and there are more chances now than ever for investors to make money from additional property.
However, before you leap, it’s essential to understand the pros and cons of owning a second property in UK. What are the pitfalls of owning a second home? Read on to find out if renting would be more suitable for you or buying a secondary residence.
Can I Own Two Homes in the UK?
Can you own 2 homes in the UK? The answer is yes. There’s no law restricting the number of properties you can acquire. This practice is common in the UK. According to the English Housing Survey, an estimated 495,000 households have second homes. Owning a second home can be a great way to invest your money and earn extra rental income. It can also be a great place to escape when you need a break from the city.
But owning a second home isn’t cheap. You’ll need to pay property taxes, as well as upkeep and maintenance costs. If you’re thinking of buying a second home, you need to have enough money to cover the cost of the property and any associated fees. Finally, you’ll need to consider whether you want to rent out your second home or not. If you decide to rent it out, you’ll need to comply with all the relevant laws and regulations.
There are different regulations with holiday homes and buy-to-let properties, so you’ll need to make sure you get it right in your area.
What is Considered to Be a Second Home UK?
What is classed as a second home UK? A second home in the UK is typically any property a person owns and primarily uses for holidays or occasional visits rather than as their primary residence. However, in legal terms, a second home is a residential property you acquire in addition to your existing home, regardless of how you use it.
There are several reasons why people choose to purchase a second home in the UK. For some, it’s a place to retire or escape the hustle and bustle of city life. Others may use their second home as an investment property, renting it out to holidaymakers or business travellers. Whatever your reason for owning a second home, make sure you can afford the mortgage payments on both properties.
Pros and Cons of Owning a Second Home in UK
As usual, everything has its pros and cons. So, what are the pros and cons of owning a second home in UK? Read on to find out and feel free to get in touch with our team if you have any questions about purchasing property in the UK.
Pros
1. Asset Appreciation
The value of your second home may increase over time, and when you sell it, you’ll be able to realise a profit. That’s why it’s a great idea to buy a second home in an area that has potential or high demand. And it’s not just the property that increases in value. The whole area around your home is likely to appreciate as well. That’s because the demand for housing increases as the population increases.
Many other factors also influence the appreciation rate of the property. For example, rising incomes enable people to afford more expensive houses, while improvements to the economy or the local area may increase people’s taste, thus pushing up prices.
Additionally, if the market is tight and there are not many houses for sale, homebuyers may be more likely to pay more for one already available.
2. Rental Income
Since you can’t stay in both of your homes at the same time, it’s advisable to rent out the second one and make extra money off it. One way to earn passive income on your second home is to lease it out to tenants who will stay for more extended periods.
Given we have a whole organisation dedicated to letting and management services, this is often what our clients decide to opt for
Alternatively, you can offer short-term rentals through an Airbnb management company like Houst (the largest Airbnb management company in the world). This option is particularly suitable for properties located in areas with a large number of tourists.
Finally, you could host events in the home and charge attendees for admission. Whatever option you choose, you need to price your rental correctly and market it efficiently to maximise profits.
3. Tax Benefits
Owning a second home in the UK can offer some great tax benefits. For starters, it can help you reduce your taxable income. If you use the property as your primary residence, you may be able to claim a deduction for depreciation and interest costs. Additionally, you may be able to exclude some of the income from the second home from your taxable income.
Another benefit is that you can offset any capital gains you make on selling your second home against any profits you make on selling your primary residence. This can be a significant saving, especially if you’ve owned your primary home for a long time. It’s essential to speak with an expert here, as there are many regulations you must follow. We have over 100 years of combined property experience, so are happy to jump on a call.
4. Convenience
A second home in the UK is a perfect route to get away from the hustle and bustle of city life. A second home can be an ideal place to escape for a weekend getaway or a more extended holiday, especially if it’s close by, so you don’t have to drive several hours to get to your getaway.
The ability to have a place to stay that is close to home is a huge advantage. This way, you can easily pop over for a weekend getaway or a longer holiday without worrying about finding accommodation. And if you have friends or family who live nearby, it’s a great way to stay connected with them. And you have the flexibility to use your property whenever and however you want.
5. Diversify Your Investments
Owning a second home is a great way to diversify your investments. Instead of having all your eggs in one basket, you’re spreading your risk over two properties.
This diversification can help you sleep better at night, knowing that you still have a second home to fall back on if one property market crashes. Vacation rentals are one of the best property types to invest in as they can help to hedge against economic downturns, as people are always going to take vacations.
One of the reasons why our Liverpool investment properties completely sold out, was that it is such a hot investment for those looking to diversify their portfolio. Opportunities like this are what you should be looking for as an investor.
6. Opportunity To Buy Through a Company
If you’re looking for a buy-to-let as your second home in the UK, you may have the option of purchasing the property through a limited company.
Purchasing a second home through a limited company can have significant tax benefits due to the treatment of profits.
If you are a private landlord with a second home, you will be taxed on the income from rent alongside your other income. However, if you purchase a second home through a limited company, the profits will be subject to corporation tax at 19%. Therefore, if you’re a higher taxpayer, purchasing through a company structure could make a second home a much more lucrative option than otherwise.
Cons
1. Initial Purchase Costs
When you buy a second home in the UK, you typically pay more than the initial purchase cost. Why is this so? For starters, you need to pay a higher stamp duty rate. And then there are the legal and financial fees, which can add up quickly.. However, the right advice in this situation can help, as many homeowners opt to purchase their homes in a company structure to have certain reliefs in this type of situation and much more flexibility.
Owning a second home can be expensive, and it’s definitely not for everyone. That’s why many prefer to rent instead of buy. So if you’re thinking of buying a second home in the UK, be prepared to pay more than the initial purchase price.
To mitigate this, speak to our team who has a specialist mortgage division and company set up procedures to provide you with the most cost-effective routes to purchasing a second home in the UK.
2. Home Maintenance
When you own a second home, you’re responsible for all the maintenance and repairs that come with it. If a roof leaks or a window breaks, you’ll have to pay for the repair out of your own pocket. This can be a huge hassle, especially if you don’t live near the property. You’ll need to hire a maintenance service to take care of things, which will cost you.
Moreover, there’s always the possibility that something will go wrong while you’re not there, and you’ll have to fly out to take care of it yourself.
Global Residential’s letting team provides full-service maintenance capabilities, giving you peace of mind and taking care of second home errands so you don’t have to.
3. Travel Time
If you’re based in London and you own a home in the countryside, that would mean a lot of long weekends and days spent on trains and buses. When you think about the fatigue of travelling, this may in itself make it not worth owning a second home.
Another reason frequent travel is a discomfort for people with two homes is that it can be expensive. Not only do you have to factor in the cost of owning and maintaining two houses, but you also have to consider the cost of travelling between them. This can be a significant burden for people trying to maintain two homes.
4. Inflexibility
One of the major drawbacks of owning two homes in the UK is inflexibility. Assuming you own a cottage in the country, you must make sure it’s available when you want it. You can’t just pop down for the weekend whenever you feel like it—you need to plan your trip well in advance.
And if you’re renting out your cottage to tenants, you’re also locked into those dates. You can’t suddenly change your mind and decide to take back the cottage for a weekend getaway. That’s not going to go over well with your tenants. However, you can keep a room vacant for yourself or take advantage of the short-term rental market and keep those dates vacant for yourself.
5. High Resale Taxes
Before leaping to resell your second property, you should be aware of the high resale taxes you might face down the road. When you sell a property that’s not your main residence, you must pay a capital gains tax on your profits. Capital gains taxes apply to the entire profit, not just the amount above the original purchase price. So, if you buy a property for £200,000 and sell it for £300,000, you’ll still have to pay taxes on the entire £100,000 profit.
This tax may vary from 28 per cent, and it can increase over time. So, if you’re thinking of reselling your second home within a few years of buying it, you’ll likely pay a chunk of that money to the government. This is why as mentioned earlier many landlords choose to invest in a company structure and can benefit from certain reliefs in situations like this.
6. The Challenge of Finding Renters
Finding renters can be challenging, especially if you’re new to the real estate market. Unless you’re willing to let your property sit empty for months on end, you’ll have to deal with a lot of hassle and paperwork. And even then, there’s no guarantee that you’ll find someone qualified and can afford to rent your place.
To find ideal guests or tenants, you’ll have to list your rentals on booking platforms like Airbnb, RightMove or Booking.com. You’ll also have to stage your rentals to attract potential guests. However, you don’t have to go through the trouble all by yourself. As mentioned above, Global Residential’s letting division can take care of all of this for you.
How to Buy a Second Home in the UK
1. Determine Your Ideal Location
First, you need to decide where you want to buy your second home in the UK. Do you want to be near the coast or in the heart of the countryside? Convenience should be at the forefront of your consideration for a location. You want to be close to the places you frequent—the grocery store, your kids’ schools, or the movie theatre.
You’ll want to consider the area’s climate since you may spend a reasonable amount of time there. Then ensure the neighbourhood has all the basic amenities you need, such as hospitals, restaurants, and shopping centres. Once you’ve determined what’s important to you, start narrowing down your options by researching different areas. Finally, take some time to visit potential locations and get a feel for them. Talk to locals and see what they have to say about the area.
2. Establish a Price Range
Establishing a price range that you’re comfortable with is one of the most significant rules for buying a second home. It will help you have a better idea of what’s available to you. You’ll be able to focus your search on homes that are within your budget. And it will help you stay within your financial limits.
Another thing to consider is the cost of ownership. Between property taxes, insurance, and repairs, it can be a real drain on your resources. So make sure you have a good cushion saved up in case of unexpected expenses. Finally, you need to figure out how you’re going to finance your purchase. Mortgages are available for second homes, but they can be difficult to get approved for.
3. Engage a Local Realtor
Once you’ve established a price range, you can start looking at properties that fit within your budget. And you’ll need the assistance of a real estate expert along the way because they know the area inside and out. Discuss your goals with your realtor so they can determine the best ways to help you.
What are your priorities? What do you want from your second home? Do you need plenty of space for guests, or are you looking for something more private and secluded? Remember that the asking price is not always the same as the sale price. An experienced real estate agent can help you negotiate a fair price for the property.
Generally, they can help you navigate the buying process, which can be tricky if you’re not familiar with the system. Real estate experts will be able to tell you what to expect and what you need to do in order to make the purchase as smooth as possible.
4. Use Equity to Buy the Second House
Equity is a property’s market value minus any money owed on it. In other words, it’s the difference between what your property is worth and the mortgage or loan balance you still owe. If you’ve been paying your mortgage for a few years, you’ve probably built up some equity in your home. And this is good news because you can use that equity to purchase another property.
Here’s how it works: assuming you want to buy a second home for £200,000. You already have a £100,000 mortgage on your first home, so you would need to borrow £100,000 as a down payment on your new home. You could potentially take out a new mortgage on your second property and use the proceeds to pay off your old mortgage. This strategy is known as “porting” your mortgage.
Is Buying a Second Home a Good Investment?
You might be wondering if buying a second home is a good investment. And the answer to that question depends on several factors, like your personal situation and the current market conditions. If the housing market is thriving and values are increasing, then buying a second home might be a smart investment.
However, it might be a better idea to avoid buying a second home if the market is weak. When interest rates rise and fall repeatedly, second homes may not provide a good return on investment. Consider consulting with a real estate expert to determine the best time to enter the market or which property to choose.
Generally, owning a second home can be a great way to generate extra income and build your wealth over time. And if you’re considering buying one, ensure the property is in a desirable area to maximise your rental income.
In this case, you may want to check out our up and coming property areas in the UK blog, which covers 12 areas you should consider for a second home/investment property.
How to Make Passive Income off Your Second Home
Earning rental income is one of the most significant rewards of owning a second home in the UK. But it can be an exhausting experience if you have to get involved in the daily running of the property. After all, you’ll still need to find tenants and manage the property. To get the most out of your second home, you must detach yourself and make the income passive.
That’s where Global Residential’s full suite of letting, management and mortgage services come in – we can take you all the way from exploring your first investment property or second home, all the way to making income from it.
To learn more about how we can help you, get in touch today.
Keep in Mind
Buying a second home can be a lot of work, but it’s worth it when you finally acquire it. You’ll have a place to escape when life gets too hectic and a steady cash flow to cater for your retirement or lifestyle. The steps outlined above will guide you toward owning your dream home.
