Buying a second home or buy-to-let property

Around 1% of Brits currently own a second property, such as buy-to-lets and holiday homes. If you’re thinking of buying a second home in the UK, there’s a lot to consider.

You’ll need to consider the impact of the additional stamp duty land tax, and other factors.

A range of circumstances will influence the decisions you make when you buy your second property.

While you may be an experienced buyer, it’s worth consulting a mortgage broker on a second home purchase or using Unbiased’s mortgage calculator to see how much you may be able to borrow.

We’ll now address these questions in more detail.

Why do you want a second property?

There are many reasons why people buy more than one home. Maybe you work in a city but prefer country life, and want more space and fresh air at the weekends but a local place during the week.

Equally, your job may take you to different parts of the country. A second home may also serve as a holiday home or can be rented out as a source of additional income.

Alternatively, you may have a large sum of money to invest in property so you can get some practical use from it while it hopefully increases in value.

A second home purchase may be short-term if you want to make money from property development.

Decide upfront what your main reasons are for buying a second home, as this will determine your choice of property.

What are the additional costs of buying a second property?

The property that you consider your main home is known as your primary residence, or principal private residence if you want to get technical.

Any additional property you own, including buy-to-let property, is known as a secondary residence.

If you are going to get a second mortgage, you’ll usually need at least a 15-20% deposit, 25% for a buy to let mortgage. Some lenders may require as much as 40%.

What is stamp duty?

When you buy any property, you have to pay stamp duty land tax on the purchase.

When you buy a secondary residence, you have to pay an extra 3% surcharge on top of the usual stamp duty. Unlike stamp duty for your first home, this surcharge applies to properties under the value of £250,000.

You’ll have to pay a higher stamp duty of 8% for properties valued between £250,001 and £925,000, 13% for properties valued at £925,001-£1.5 million, or 15% for a property valued over this amount.

In Wales and Scotland, there are different rates on additional properties.

What is capital gains tax (CGT)?

A secondary residence is also subject to capital gains tax (CGT) when sold if its value has increased since you bought it.

Only the growth in value is taxed, and your annual CGT allowance should reduce the taxable amount.

If you’re selling, a financial adviser may be able to help you work out how much you need to pay.

What is council tax?

You’ll usually pay council tax on any second home, which includes furnished homes with no one living there.

You may be eligible for a discount, so it’s worth contacting your local council to check.

From April 2024, homes in England that are left empty and substantially unfurnished for more than one year are now subject to a council tax premium of up to 100%. These new reforms are designed to help tackle the issue of empty properties, making it easier for people to find affordable housing in their local communities.

Utility bills, maintenance and renovation costs

It’s always a good idea to make sure you can afford monthly bills for your second property, including insurance and energy bills, as well as have money set aside for maintenance and renovation costs.

What are the tax implications of buying a second home?

You’ll have to pay income tax on your second property if you choose to rent it out.

The amount of tax you’ll pay depends on your profits and tax band – and you should be wary that your rental income could push you into a higher tax band, so you’ll pay more.

You can deduct expenses from letting out your property, such as estate agent fees, maintenance and repairs and accountant fees.

Also, if you have a mortgage for your second home, you can get a tax credit based on 20% of your mortgage interest.

How do I let out my second home?

Even if you didn’t have buy-to-let in mind, you may decide to let your second home so it generates income rather than sitting empty.

This can also be a good way to keep the property maintained if you pick responsible tenants.

However, to do this, you’ll need to remortgage the secondary residence to a buy-to-let mortgage, as you can’t let a property on an ordinary homebuyer’s mortgage.

Alternatively, you could let out your current home and move into the second property, but this would mean switching the first home to a buy-to-let mortgage.

What is ‘let-to-buy’?

This essentially means letting out the property you currently live in so that you can buy a new home. You might try this if you’re struggling to sell your home or if you want to keep it as an investment.

Another reason for let-to-buy may be to free up cash for a deposit on a secondary residence.

Assuming you own enough equity, you could remortgage your current home to release some of that value as a cash sum.

However, this can be complex and risky, so consult a mortgage adviser about the practicalities.

Can I make money as a property developer?

One popular reason for buying a secondary property is to profit from a strong housing market.

The usual approach is to buy a cheap property that probably needs a lot of work, renovate or extend it, and then quickly sell it as a finished product.

During a property boom, this can be lucrative, but it is high risk – if the market stalls or crashes (as it has done in the past), you can lose a lot of money and be left with a half-finished home you can’t sell.

If you’re tempted by this route, aim to have a safety margin to cushion you if prices don’t rise as you hoped or if the property takes longer than expected to sell.

Also factor in renovation costs, and remember that estimated costs usually rise considerably. But if you’re a DIY fan and enjoy a big project, talk to a mortgage adviser about how to make it happen.

Can I use my holiday home as an AirBnB or similar holiday let?

Buying a property for holidays has many attractions, if you love a place enough to go there every year. And when you’re not using it yourself, you can rent it out to other holidaymakers.

The good news is you may not need a buy-to-let mortgage as it can be a normal residential mortgage if you only let it for a few weeks a year.

If you plan to let your property regularly, you need a holiday let mortgage.

Renting out your holiday home may have tax implications, so discuss this with a financial adviser, especially after the new property tax proposals announced in the Spring Budget.

On the plus side, you may be able to currently claim certain allowances and reliefs if you let out the home for more than 105 days a year. 

Some people choose a purpose-built property to save on tax but they may not have planning permission to be residential all year round, which may affect your future if you want to move there.

I’m helping a family member onto the property ladder

If you’re a homeowner and are buying a home with a relative, this is counted as a secondary residence and you’ll have to pay the stamp duty surcharge.

For alternative options on how to help your children buy their first home, see our article on the bank of mum and dad.

I’m buying a second property to start a business

If the property you’re buying is partly for business purposes and partly residential, then it will be classed as a mixed-use property.

A mixed-use property may mean lower stamp duty, but you will have to pay other taxes.

Having second thoughts?

A good rule of thumb is that if you took care buying your main home, you should take extra care when buying a secondary residence.

You should start by finding a mortgage broker who specialises in this area. Unbiased can quickly connect you with a mortgage adviser who can help you on your property buying journey. 

Did you find this article helpful? You may also find our article on the advantages and disadvantages of renting vs buying and consent to let useful.

Get expert financial advice

Whether you're investing in a buy-to-let property to generate rental income or purchasing a second home for your own use, the process can be both rewarding and complex.

Careful planning is essential, as there will likely be extra costs, tax implications, and legal requirements to consider. By fully understanding the financial aspects, you can ensure that your second property supports your long-term objectives effectively.

Let Unbiased match you with a qualified mortgage broker who can help you navigate the complexities of buying a second home or securing a buy-to-let mortgage.