Buying a second home

Buying a second home

Whatever your reason for buying a second home, it’s important to know your options for financing a purchase and how to save money

Are you dreaming of owning a holiday home by the sea, a weekend bungalow close to your children or grandchildren or perhaps an investment property you can rent out to generate income? Buying a second home can appeal for a number of reasons and it may be more affordable than you think.

How to buy a second home

Before you commit to a second home you will need to decide how to finance it. There are a number of mortgage options available depending on your financial situation. For many, using the equity in your main property will be the best option, while investors may need a buy-to-let mortgage. 

Make sure you factor in additional expenses such as stamp duty and potential capital gains tax on a second home in the future when doing your calculations, as these can add significantly to the overall cost. There will also be ongoing expenses to consider such as council tax, insurance and utilities.

Mortgages for a second home

If you’re simply after a holiday home rather than an investment property to rent out, there are several ways to pay for it. You can pay in cash, remortgage your existing property or, if you’re an older homeowner, opt for equity release.

If you are buying a second property, an online calculator can help you determine what your budget is. There are a number available online for remortgage and equity release customers, including the free equity release calculator on this page.

Buying a second home using equity

Rather than taking out a second mortgage, you can remortgage your existing property as long as you own your home outright and have built up some equity. It’s easy to work out how much equity you have in your property. If you own it mortgage-free, the total value of your home is your equity. If you have a mortgage, your equity is your property’s value minus your remaining mortgage debt.

A number of mainstream and specialist lenders offer remortgages. When comparing costs, it is important to look beyond the headline rate. Arrangement fees, valuation costs and other expenses such as legal fees should be factored into the total cost.

If you still have a mortgage on your first property, check for early repayment charges that could make remortgaging very costly. It could be better to wait until you reach the end of a fixed-term deal to borrow more. Be aware that many lenders will want a higher deposit on a second property and mortgage rates may be higher.

Buying a second home using equity release

Another option for borrowers aged over 55 is equity release. A lifetime mortgage, the most popular type of equity release scheme, allows you to access a tax-free cash lump sum from the equity in your home without the need to sell. Unlike remortgaging there are no monthly payments, meaning your retirement income will not be negatively affected. Instead, interest on the money you borrow rolls up over time and the full amount is typically repaid when you move into long-term care or pass away, and your home is sold.

Buy-to-let mortgage

If you are buying an investment property to rent out, you will often need a buy-to-let mortgage. You can choose to take out a capital repayment or an interest-only buy-to-let mortgage, however interest-only mortgages are more common amongst landlords. Buy-to-let lenders will usually want at least a 25 per cent deposit and the mortgage rates and fees tend to be higher than those for residential mortgages.

Be prepared to show the likely rental income on the property, as well as evidence that you can afford the repayments both now and in the future if interest rates rise.

What if I want to buy a second property abroad?

It is possible to remortgage or release equity from your current home to pay for a holiday home overseas, but it’s important to get expert advice on both taxes and regulations in your chosen country so you are aware of any additional charges you might face.

Equity release will also not be a suitable choice if you are looking to move abroad permanently, as you must live in the home that you have released equity from for at least six months of the year. 

Second home stamp duty

If you already own a property you will be hit with a higher stamp duty charge when it comes to buying a second home in the UK. You will typically have to pay 3 per cent above the normal rates, which are currently lower than usual thanks to the Government’s stamp duty holiday. The rates for England and Northern Ireland are shown below.

Rates from 8 July 2020 to 31 March 2021:

Property Value Stamp duty rate* Second home rate**
Up to £500,000 0% 3%
The next £425,000 (portion from £500,001 to £925,000) 5% 8%
The next £575,000 (portion from £925,001 to £1.5m) 10% 13%
The remaining amount (portion above £1.5m) 12% 15%

For example, if you are buying a main residence in England worth £600,000 you will pay £5,000 in stamp duty (nothing on the first £500,000, then 5 per cent on the next £100,000).

If however the same property is your second home or a buy-to-let, you will pay £23,000 (3 per cent on the first £500,000, then 8 per cent on the next £100,000). 

Be aware the stamp duty holiday is due to end in April 2021, after which time it will cost you significantly more to buy a second home. 

Rates from 1 April 2021:

Property value Stamp duty rate Second home rate
Up to £125,000 0% 3%
The next £125,000 (portion from £125,001 to £250,000) 2% 5%
The next £675,000 (portion from £250,001 to £925,000) 5% 8%
The next £575,000 (portion from £925,001 to £1.5m) 10% 13%
The remaining amount (portion above £1.5m) 12% 15%

Using our example above, the same £600,000 second home or buy-to-let will incur a stamp duty charge of £38,000 – some £15,000 more. 

Capital gains tax on second home

While there is no capital gains tax (CGT) to pay on your main home, it will apply when you eventually sell a second home. The amount you pay will depend on your income tax bracket and how much profit you make on the property. 

For basic rate taxpayers selling a second residential home, the rate paid depends on the size of their gain and their taxable income, while higher-rate and additional-rate taxpayers will pay 28 per cent.

You may be able to offset expenses such as stamp duty, legal fees and estate agent fees when doing your calculations. While CGT is not an upfront cost when buying a second home, you should be aware that it may apply when the time comes to sell.

Interested in equity release?

Releasing equity to buy a second home could be a good solution if you are planning to buy in retirement. Modern lifetime mortgages offer far more flexibility than the equity release products of the past. You can now choose to keep your interest bill down by making regular interest payments if you want to, or you can access funds in stages rather than taking it all upfront as a lump sum. You can also choose products that allow you to protect an inheritance for your beneficiaries.

If you are interested in releasing equity, we have partnered with Responsible Equity Release, a market-leading broker. They can offer you a free no-obligation chat with their Information Team and, if you’re ready, book you an appointment with an equity release adviser. An adviser can help you to understand whether equity release is the right choice for you, as well as explain how it could impact the value of your estate and your entitlement to means-tested benefits.

Responsible will only deal with lenders who are members of the Equity Release Council, meaning you will be protected by a no-negative-equity guarantee which will ensure you never owe more than the value of your home.

To find out how much you might be able to release from your home, and receive your free guide to equity release, fill out the equity release calculator on this page. If you provide your phone number, then the Information Team can get in touch at a time that suits you.

Use the instant equity release calculator to find out how much tax-free cash you could unlock.


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The Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register ( under reference 610205. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,490.

The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.

Information correct at date of publication.

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