Purchasing A Second Home – How To Prepare
There are many reasons why homeowners explore purchasing a second home, such as for other family members to inhabit rent-free, to use as a holiday home or as long-term investments. But how does the process of buying a second home differ from purchasing your first?
Before reaching the conveyancing stage, it’s important to first understand the key financial considerations and differences in the way purchasing a second home works, mostly around tax and mortgages.
Step 1: Your finances
Firstly, you will need to have your financial situation assessed to determine your borrowing power, which will take into account your current home loan repayments.
Mortgage
If you’re purchasing a second home using equity, it is possible to use this from your main home. It’s mandatory to know that the deposit is at least 25% on second homes, and a mortgage lender will judge and decide if you have enough equity to afford the second home mortgage repayments.
You could use the equity on your main home to take out a remortgage and use those funds for a deposit on buying your second property.
It’s worth noting that, depending on what you are using the property for, you may need to acquire a specialist mortgage, such as a buy-to-let or holiday let mortgage.
Calculate the Stamp Duty
One of the biggest factors and challenges for property owners is Stamp Duty (Stamp Duty Land Tax), a tax payable when purchasing a property or a piece of land. However, if you’re purchasing a second home or investment property, you’ll typically face an additional 5% surcharge on top of the standard stamp duty rates.
There are exemptions on this, which only apply if the property you’re buying is replacing your main residence and your previous main residence was sold within 36 months of completing your new purchase.
Calculate your second home Stamp Duty here.
Capital gains tax
Another aspect of finances to be aware of if you are exploring purchasing a second home is the capital gains tax, which is a charge on the increase in the value of an asset when you sell it. Assets, for example, include property (second homes), antiques and shares.
In short, tax is payable on any profit (gain) you make when you sell a property that is not your main home
For property, capital gains tax rates are based on income. As of the year 2024/25, basic-rate taxpayers currently pay 18% whilst higher earners pay 24% on any gains they made when selling a property.
It is worth noting that any capital gains you make in the tax year will be included when working out your personal tax status for that year; therefore, any gains made from selling a property could push you into a higher tax bracket.
Lastly, there are exemptions of CGT such as Private Residence Relief, whilst Partial Residence Relief will reduce the amount owed. Additional exemptions or reduced taxes may apply in cases such as business use or divorce settlements, provided specific eligibility criteria are met.
Council tax
From 1 April 2025, councils in England now have the authority to charge a council tax premium of up to 100% on second homes.
However, there are exemptions for properties paying the premium, for example, if the property is under restrictive planning restrictions for use as a holiday let only. In England, you will need to pay a business rate as opposed to a second council tax if the property is available for short-term letting periods of 140 or more days a year.
As every case is different, the billing authority (the district or unitary council) will decide whether a property falls into any of the exemption categories. To prepare ahead, it’s vital to research local districts to calculate the annual council or business tax rate that may apply when purchasing a second home.
Step 2: Appointing a professional
Now that you have your finances in order and you’ve decided the purpose of your property, this is where you seek professional and legal services.
Estate and letting agents
Following the same process as purchasing your first home, an Estate agent will arrange the necessary paperwork to market your property based on its intended use and will also manage negotiations on your behalf.
If you’re planning to rent your property outside your main residential area, consider hiring a property manager to assist with and arrange inspections or repairs on your behalf.
Conveyancing
Regarding the legal side of purchasing a second home, our residential conveyancing solicitors in Plymouth will perform the usual checks and searches to ensure that the property is marketable.
A typical search will cover the following:
- Restrictions on use – Certain covenants may prevent you from using the home in particular ways. For example, if you’re planning to use Airbnb or short-term lets, you’ll need to make sure there are no legal barriers in the title deeds.
- Planning conditions – local occupancy clauses might mean that only people with ties to the area can live there permanently.
- Protected areas – If the property is in an Area of Outstanding Natural Beauty (AONB) or a conservation area, you may face stricter planning rules, which could affect whether you can renovate or even change the exterior.
Our latest article covers a full overview of what is required in the conveyancing searches and expected timeframes, here.
Step 3. Final thoughts
As an advantage, the experience and knowledge gained from owning a first property can help prepare you for the legal costs, timeframes and documentation involved in purchasing a second home.
That said, every decision comes with its pros and cons. It’s important to research the financial outlook carefully and assess whether the investment will bring long-term benefits.
Always Ask Yourself…
Is the timing right? Consider current market conditions. Are interest rates higher or lower?
Can I afford it? Factor in ongoing costs such as taxes, insurance, maintenance, and any additional fees.
Is the location suitable? Is it in an area you’ll enjoy or that has good rental potential? Will you require a property manager to oversee it?
What about the future? Plan for life’s uncertainties. Future-proof your investment by updating your will.
How GA Solicitors can help
If you’re thinking about purchasing a second home, you probably have plenty of questions regarding mortgages, taxes and more. That’s where we come in.
At GA Solicitors, our team of conveyancing solicitors in Plymouth has a wealth of experience in guiding people through the process of buying a second home. You can feel confident working with us to make your second home purchase smooth and straightforward, with all the proper legalities taken care of.
To speak with one of our solicitors, contact us by filling in our online enquiry form or calling us on 01752 203500.
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