Nearly half a million people now own a second home in England after a surge of 50 per cent in the last decade, according to recent figures reported in The Telegraph newspaper.
There are a number of reasons why you might want to purchase a second home: a private idyll to escape to; an investment to generate income by renting it out; or to help children with university accomodation. However, there are specific matters that you should carefully consider when buying a second home, as Erin Denness, Head of Residential Property at Hughes Solicitors in Heathfield, explains.
Conveyancing Process
The conveyancing process works in the same way as the purchase of your main residence; your solicitor will carry out all of the usual investigations and searches to ensure that your prospective property has a good and marketable title, and to ensure there are no restrictions that might hamper your intended use of the property.
For example, there may be covenants or restrictions in the title that prevent the property being used as a holiday-let or specific permission may be required if the property is to be rented out to tenants.
Stamp Duty Land Tax
In general, Stamp Duty on investment properties is payable at the higher rate. You will have to pay an extra three per cent on top of the usual stamp duty land tax applicable to your purchase price.
Choice of Mortgage
Your choice of mortgage product will vary depending upon how you intend to use your second property.
For example, if you are investing in a property to rent out you will need a ‘buy-to-let’ mortgage. The mortgage offer will have conditions attached to it which may need to be reflected in any tenancy agreement you have with your tenant. The mortgage offer may also stipulate to whom the property may be let.
If you intend to use your second property as a holiday let (including letting through Airbnb) when you are not using it yourself, you could purchase with a specific ‘holiday-let’ mortgage. To be eligible for this type of mortgage, the property must usually be used as a holiday let for at least 210 days a year.
Landlord Responsibilities
Buy-to-let properties come with their own risks and responsibilities. You must ensure that your tenant’s deposit is kept in a government approved Tenancy Deposit Scheme. You will need to ensure that the property is kept in good repair, the boiler and gas appliances are certified annually and electrical installations certified at least every 5 years. , Smoke and carbon monoxide alarms should be fitted and be in working order. You can delegate these duties to a managing agent, but this will, of course, incur a cost and therefore cut into your profits.
You should also be aware that the minimum energy rating for rental properties is currently ‘E’. In 2021, changes to the minimum energy efficiency standards were announced that will affect landlords and rentals from 2025. The government has proposed that all rental properties will need an EPC rating of ‘C’ or above by 2025. Similar to the previous changes, the new regulations will be introduced for new tenancies first, followed by all tenancies from 2028. The penalty for not having a valid EPC will also be raised from £5,000 to £30,000 from 2025.
If you have purchased with a buy to let mortgage, there is always a risk that you could be left struggling to pay your mortgage if your tenant does not pay their rent, or they move out and you are unable to find a new tenant.
Holiday Homes
One bonus of letting out your second home for holiday use is that business rates might be payable instead of council tax. This may be advantageous given some councils wish to raise the council tax payable on second homes.
From 1 April 2023 for homes in England your holiday home could be rated as a self-catering property and valued for business rates if it is both available for short-term lets for 20 weeks or more per year, and must actually be let out for 70 nights or more. Different rules apply for properties in Wales.
Student Accommodation
You may be considering purchasing a property for a child at university which can also be let to other students to provide rental income.
In addition to the Landlord Responsibility mentioned above, you will also need to comply with legislation relating to Houses in Multiple Occupation (HMOs) if the property is to be let to more than three people.
Tax implications
There can be significant tax implications resulting from your purchase of a second property.
With the help of a suitably qualified and experienced tax and financial advisor, you should carefully consider how you will be affected by taxes such as income tax on rental income, inheritance tax for your beneficiaries and capital gains tax.
How we can help
Buying a second property can have many implications and requires specialist property and tax advice.
Our team of property specialists can talk you through your options, advise you of your rights and responsibilities, ensure the property is right for your objectives, and undertake all the conveyancing.
This article is for general information purposes only and does not constitute legal or professional advice. Please note that the law may have changed since the date this article was published.