Buying a second home

Every year, thousands of homeowners decide to buy a second home.When considering how much deposit is required for a second property, it's important to note that a typical deposit can start at 25%, depending on factors such as the property's purpose and the buyer's financial status.If you’re looking to buy a second property to rent out, you’ll have to get a buy to let mortgage. It's crucial to understand different mortgage options available, as they can vary significantly based on whether the property will be used as a rental or a vacation home.If you do not plan to rent your second home and want to keep your original home too you can:

• remortgage your current home

• release equity from it, if you’re an older homeowner

Consulting a financial advisor can also be beneficial in structuring your finances and minimizing potential tax liabilities when managing multiple mortgages.

Remortgaging to buy a second home

Remortgaging is often the best way to fund a deposit on a second home, or buy it outright.When looking to remortgage, avoid choosing based on the interest rate. Instead, look at exactly what you’ll pay. This includes the interest, any fees, and the remaining balance after the initial period ends. Additionally, having a good credit history is crucial as it significantly impacts your eligibility and the terms you may receive. There are some restrictions on remortgaging for older borrowers.

Some lenders accept borrowers who are over retirement age if they can prove their mortgage is affordable. Their application will also need to pass the ‘stress test’.A ‘stress test’ relates to things that could affect if you can meet your mortgage repayments. For example, interest rates rising, or you losing your job. Having an existing mortgage can also impact the remortgaging process, as lenders will evaluate your current debts and commitments to ensure you can manage additional payments. Read more in our remortgage guide.

Equity release

You can access the equity (or cash) tied up in your home through ‘equity release‘ if you’re over the age of 55. It is important to have enough equity in your home to consider equity release as a viable option.You can take the money out in full or in a few smaller amounts. This option is to let older borrowers use the wealth they have in their homes to pay for another home.

The most common equity release scheme is called a ‘lifetime mortgage’.

Interest on the lump sum of a lifetime mortgage builds up over time. It’s repaid when the borrower goes into long-term care or dies.Releasing equity can affect if you can get state benefits and the value of your estate. We recommend getting professional advice first. Consulting a financial advisor before proceeding with equity release is crucial to ensure you make informed decisions.

Buying a property for holidays has many benefits, particularly if it’s in a location you’d visit often. There’s also the option to rent it out to holidaymakers when you’re not there to make some extra cash. Renting out your holiday home not only generates income but also helps maintain the property through responsible tenants. However, it's important to consider the necessary financial adjustments, such as obtaining a buy-to-let mortgage, to facilitate this rental process.

If you only plan to let your holiday home out for a few weeks a year, you do not need a buy to let mortgage. You can get a residential mortgage.

If you plan to rent it out often you might need a holiday let mortgage.

A holiday let mortgage is for people who want to borrow money to buy a property that they’ll let out short term to tourists. This would allow you to charge more to customers than you would with long-term tenants in a buy to let.

Additionally, be aware that rental income from a holiday home can push you into a higher tax band, increasing your tax liabilities.

Do your research

Renting out a holiday home will affect the tax you pay. You’ll have to declare this income on a Self Assessment tax return each year.

Make sure you discuss it with your financial advisor first, as they can assist in structuring your finances to minimise potential tax liabilities and provide advice amidst various financial pressures associated with managing multiple mortgages.If you plan to rent it out for more than a certain number of days a year, you could be eligible for specific allowances and tax reliefs.

Some purpose-built holiday homes do not have the planning permission to be residential all year round. Make sure you check this first, especially if you’re thinking of moving in full time one day.

If you’re already a homeowner and you want to buy a second property for a relative, it will be a second home.

You’ll have to pay a charge on top of the usual Stamp Duty. You’ll also have to pay capital gains tax (CGT) when you sell.

Consulting a mortgage adviser can be crucial in navigating the complexities of buying a second property for a family member.

You can also help a family member buy a home by:

• giving a cash gift or informal loan to help pay their deposit

• being a guarantor for their mortgage if they cannot afford a deposit or do not meet the lender’s requirements

• looking into first-time buyer government schemes

Before taking on additional financial responsibilities, it is essential to assess your existing debt to ensure you can manage the expenses associated with another mortgage.

Read our guide on how parents can help their children get onto the property ladder for more information.

You can buy a property partly for business, and partly for living in. This is classed as a mixed-use property, sometimes known as semi-commercial.It's important to have a clear investment strategy when buying a property for business purposes.

This means the stamp duty will be lower but you’ll have to pay more taxes and business rates.

Additionally, make sure to account for property taxes in your financial planning to ensure long-term financial stability.