What You Need To Know About Buying A Second Home

Is a holiday home always a good investment – should you even look at it as one?

“Holiday homes have become a popular investment for two key reasons. First, a property in a holiday hotspot can command high weekly rates. Second, it offers a home away from home for your family whenever the property is empty. During peak season (six weeks in the summer and two weeks over Christmas) rental prices can offset the running costs incurred during the other 44 weeks of the year. That said, holiday homes bring their own share of disadvantages, too. They can cost more in terms of upkeep and maintenance than other buy-to-let properties and you may need to enlist the help of a managing agency. The more you depend on the rental income to support your own financial situation will impact how you market the property. It’s up to you to decide whether the financial reward is worth the extra hassle.” – the Zurich team

If you do want to let the property out, what is there to think about?

“If you're planning to rent out your holiday home, this will inevitably lead to more maintenance costs than you'd experience otherwise – but on the other hand, it can result in a win-win situation in which your rental income covers overall maintenance costs. If you'd rather outsource the management of renting out your holiday home to a property management agency, you'll need to factor in these costs. This can vary considerably depending on where you holiday home is, but it is not uncommon for a holiday letting agent to take up to 25% from each rental. Although this may seem a large chunk of your income, once you've factored in the convenience and a (hopefully) guaranteed good service, you may find that this extra expense is worthwhile in the long term, as it'll free up your time and should result in better guest satisfaction and bookings.” – the Towergate Insurance team

“The single most important consideration is what the local holiday let market is like. You really want somewhere where guest demand consistently outstrips the supply of properties to let. Speak to a professional buying agent or a holiday rental company about where the balance between demand and supply is most likely to tip in your favour. Don’t be overly swayed by talk of areas that are the ‘next big thing’. Demand for staycations was exceptionally high during the pandemic but that won’t last forever. Patterns are returning to more familiar territory. Properties that are ten miles inland will always be cheaper to buy, but harder to let, than those with a sea view for example. Get it right and it can be very lucrative. For example, a one-bedroom cabin in Cornwall with sea views that sold for around £550,000 is projected to generate a gross rental income of £85,000 a year.” – Jonathan

Is it possible to live in a holiday home in the UK all year round? 

“With a second home (as opposed to a holiday let) there are no restrictions on how many days a year you can stay there. Clearly, you’ll need to choose somewhere that has enough space for your needs, and it may be worth considering somewhere that requires limited maintenance – that you can ‘lock and leave’ when you’re not there. If you’re buying as a holiday let investment, then yes, there are more factors to consider.” – Jonathan 

“UK law does not permit you to live in a holiday home for 12 months at a time – you’ll need to decide what your permanent address is for council tax reasons. Your council tax is lower on a secondary residence, so you could be a burden on local services if you were living in a holiday home all year round.” – the Towergate Insurance team

How easy is it to get a mortgage on a second property in the UK?

“It’s easier to get a mortgage for a second home than it is a holiday let property – and there is a difference. Loans for the latter are available, but there’s less choice as they tend to be the preserve of a few specialist lenders. Interest rates tend to be higher than those of a buy-to-let mortgage and you’ll typically need a deposit of at least 25%.” – Jonathan 

What about when you want to buy something abroad?

“It can be very difficult to get a mortgage overseas, especially if you're a foreigner. And if you do manage to get one, the interest rates could be much higher than if you were a local. If you take out a mortgage with an overseas lender, your payments are likely to be in a foreign currency, which might help if you want to manage foreign exchange fluctuations. Your money will go further if your home currency is strong relative to the local currency overseas. But, if there are fluctuations and you see your currency fall, your payments could become more expensive if you're converting your devalued currency into the overseas currency to cover them. If you use an overseas lender, it's recommended that you use your own, independent lawyer and translator to protect you from fraud.” – the HSBC International Services team

“If buying abroad, you can either get your loan from a UK bank – but only if they have a presence in the destination country – or through a local lender. If your holiday home is a business – i.e. you intend to let it out – you will need a holiday home mortgage. These aren’t available at most high street banks and are instead offered by some specialist building societies. Lenders will expect proof that you can make a gross income of 125-130% of your mortgage payment, so you need to do some research on the local lettings market to know whether that’s realistic. There are also strict rules about buy-to-let mortgages, so they aren’t always appropriate for holiday lets.” – the Towergate Insurance team

What kind of taxes are second properties and holiday lets subject to in the UK?

“If the property is located within the UK, tax will be charged on the purchase of a property. If you own other residential property or purchase it via a corporate wrapper, it will be subject to higher rates for additional dwellings (HRAD) – this is in addition to the standard land tax rates. If the property is located within England and Northern Ireland the HRAD rate for Stamp Duty Land Tax is 3% of the purchase price. The rates differ for properties located in Wales or Scotland.” – Natasha Heron, tax manager at Hillier Hopkins

“The tax treatment of the income you make from a holiday let property is still relatively favourable. If you have a mortgage on the property, you can offset your interest payments against the rental income you receive – thus reducing your income tax liability. This tax break no longer applies to buy-to-let properties, just to furnished holiday let properties. To qualify though, the property needs to be let out at least 105 days a year and available to let for at least 210 days.” – Jonathan 

And what about with those properties purchased abroad – what are the tax implications?

“You need to pay UK stamp duty even when buying a holiday property abroad. There are always local purchase taxes in the country where you’re buying, and these will need to be paid as well. Rental income for the property will be paid to the authority that the property is situated in, and this will be deducted from your UK tax bill. It can make filling out a self-assessment tax return quite complicated, so it’s worth getting some professional help. Although an additional tax (on top of a country's equivalent of Capital Gains Tax) is rarer when you sell the property, it’s not unheard of. France, for example, has a 17.2% social levy on top of the 7.5% Capital Gains Tax on any profit you make on a sold property. Mortgage qualification criteria are also different, but it usually makes sense to get a local mortgage in the country in which you are purchasing the property (it’s usually the most cost-effective option). Talk to several mortgage brokers who specialise in second property mortgages to make sure that you meet the eligibility criteria.” – Chris Salmon, operations director at Quittance Legal Services

Post-Brexit, have there been any changes worth noting?

“Post-Brexit, the length of time UK citizens can spend in the EU without a visa is limited to 90 days in 180 but even so, many are staying for longer than they would have done before, conscious of their carbon footprint and because they can now work from anywhere. If you are searching in Europe, be aware of the restrictions and plan to make it work for you.” – Jelena Cvjetkovic, director at Savills

Any final pieces of advice?

“Any property that is less frequented than a primary home has a higher risk of burglary. This is one of the reasons why a standard home that is empty for more than 30 days will usually require unoccupied home insurance. Renting out your property can help to reduce this risk, but comes with other risks such as burglars being able to easily scout out the coming and going of guests. It’s therefore extra important to take precautionary security measures when it comes to your holiday home. To avoid being unable make a successful claim in the event the worst does happen, make sure you understand the ins and outs of your holiday home insurance policy – and if you're unsure about anything, speak to an adviser.” – the Towergate Insurance team