Challenges of Owning A Second Home

Nikka Sulton

Challenges of Owning A Second Home

Owning a second home in the UK can be a sound investment, considering the country’s growing economy and demand from international buyers. But it’s vital to weigh the pros and cons. For aspiring second-home buyers, owning a second property in the UK presents a dream worth pursuing. However, the journey involves key decisions like location selection, mortgage arrangements, and property management. When it comes to location, England and its surroundings offer compelling reasons to opt for a UK second home. From urban penthouses to countryside retreats, the UK offers diverse choices to cater to various preferences.

Is renting a better choice for you? Explore the drawbacks of owning a second property.

Can I Own Two Homes in the UK?

Yes, it’s entirely permissible to own multiple properties in the UK, with no legal restrictions. In fact, this is a common practice, as evidenced by the English Housing Survey, which reports approximately 495,000 households with second homes. Owning a second property offers investment opportunities and the potential for additional rental income. Additionally, it can serve as a welcome retreat from the hustle and bustle of urban life.

However, it’s crucial to be aware that owning a second home comes with expenses. These include property taxes, as well as ongoing maintenance and upkeep costs. Before embarking on this venture, ensure you have the financial resources to cover property expenses and associated fees. Moreover, if you intend to rent out your second property, you must adhere to relevant laws and regulations, which can vary depending on whether it’s a holiday home or a buy-to-let property. It’s essential to familiarize yourself with the specific regulations in your area to ensure compliance.

Benefits of owning a UK holiday home

Owning a second home in the UK offers various advantages:

1. Good Investment Potential

The UK’s property market experiences high demand and limited supply, often resulting in rising house prices. Property owners can swiftly sell their UK properties. Analysts project a potential 35% increase in UK property values from 2020 to 2025, making a second home a potentially profitable investment.

2. Rich History and Culture

The UK boasts a wealth of historical and cultural treasures, from Buckingham Palace to iconic figures like Shakespeare and The Beatles. It’s home to renowned landmarks such as Stonehenge, Oxford University, Windsor Castle, and Canterbury Cathedral. Exploring this heritage-rich nation offers endless opportunities for cultural enrichment.

3. Ideal for Relaxing Breaks

A UK second home provides diverse leisure opportunities, regardless of its location. In the vibrant heart of London, you can relish the city’s energy or enjoy serene moments in Kensington Gardens or at a theater. Beyond urban centers, the UK boasts stunning countryside, with picturesque spots like the Cotswolds offering a tranquil escape for picnics and relaxation.

4. Potential for Lower Taxes

Depending on the local authority, owners of second homes may benefit from reduced council tax rates. Some local authorities offer discounts, and many holiday-home owners enjoy a 10% reduction in council tax.

5. A Place to Call Your Own

Owning a second home provides the joy of having a personal space – a potential retirement destination, a place to establish community connections, and a comforting retreat. It can even serve as an additional source of income.

Investing in a second home in the UK offers financial potential, cultural exploration, relaxation, and the satisfaction of having a place to call your own.

Challenges of Owning A Second Home

1. Initial Purchase Costs

Buying a second home in the UK entails more than just the initial purchase price. Firstly, you’ll face a higher stamp duty rate. Additionally, legal and financial fees can accumulate rapidly. However, strategic advice can make a difference. Many homeowners opt to purchase their second homes within a company structure to access specific reliefs and gain greater flexibility. Owning a second home can be a costly endeavor, prompting some to choose renting instead. If you’re considering buying a second home, be prepared for expenses beyond the purchase price. Seek guidance from our specialist mortgage division and explore company setup options for cost-effective approaches to second home ownership.

2. Home Maintenance

As the owner of a second home, you bear the responsibility for all maintenance and repairs. Whether it’s a leaking roof or a broken window, you’ll have to cover the costs out of your own pocket. Managing maintenance from a distance can be challenging, especially if you don’t reside near the property. You’ll likely need to enlist a maintenance service, incurring additional expenses. Furthermore, there’s the possibility of unexpected issues arising while you’re away, potentially requiring you to travel to address them in person.

3. Travel Time

Owning a second home, especially if it’s in a location distant from your primary residence, can entail significant travel time. For instance, if you’re based in London and own a home in the countryside, it may mean frequent long weekends and hours spent on trains and buses. The fatigue and time spent traveling can make the prospect of owning a second home less appealing. Additionally, consider the financial aspect. Owning and maintaining two houses aside, you must factor in the cost of traveling between them, which can become a substantial financial burden.

4. Inflexibility

One notable drawback of owning two homes in the UK is the inherent inflexibility. Suppose you own a countryside cottage. In this case, you must plan your visits well in advance, as it may not be possible to make impromptu weekend getaways. This becomes even more complicated if you’re renting out the cottage to tenants, as you’re committed to those booking dates. Changing your plans at the last minute could lead to dissatisfaction among your tenants. However, you do have options to keep a room vacant for personal use or leverage the short-term rental market to maintain flexibility in your scheduling.

5. High Resale Taxes

It’s essential to be aware of the potential high resale taxes when considering selling your second property. Selling a property that isn’t your primary residence subjects you to capital gains tax on your profits. Notably, capital gains taxes apply to the entire profit, not just the amount exceeding the original purchase price. For example, if you purchased a property for £200,000 and sell it for £300,000, you’ll be liable for taxes on the entire £100,000 profit.

6. The Challenge of Finding Renters

Securing suitable renters for your second home can prove to be a daunting task, especially if you’re relatively new to the real estate market. Unless you’re comfortable with the prospect of your property remaining vacant for extended periods, you’ll need to navigate a series of challenges and paperwork associated with tenant recruitment. Even with your best efforts, there’s no guarantee of finding qualified and financially capable tenants.

Attracting ideal guests or tenants necessitates listing your property on rental platforms such as Airbnb, RightMove, or Booking.com. Furthermore, you’ll need to stage your property to make it appealing to potential occupants. However, you don’t have to shoulder this burden alone. As previously mentioned, Global Residential’s letting division can handle these aspects on your behalf, streamlining the process and alleviating the associated challenges.

What to know before buying a second home

Almost three-quarters of a million households in England own a second property, with about half a million situated in the UK, as per official data.

If you are contemplating the purchase of a second property, there are crucial factors to consider:

Second homes are subject to a 3% stamp duty surcharge in addition to the standard stamp duty tax rate.
To secure a mortgage, you’ll typically need a minimum deposit of 15% (or 25% if you intend to rent out the property).
Existing mortgage holders must meet stringent affordability criteria to obtain a loan for a second home.
Mortgage interest rates are generally higher for second home purchases.
If you plan to rent out the property, you’ll require a specialized buy-to-let mortgage.
Post-purchase, ongoing maintenance costs are a reality.
Selling a second home at a profit may lead to a capital gains tax liability.

Is buying a second home a good investment?

Whether a second home is a good investment hinges on various factors, including your personal circumstances, property expenses, research efforts, and your intentions for the property.

If your plan involves renting out the second home, it can potentially generate income, provided the rent exceeds mortgage payments and related expenses.

On the other hand, if you’re purchasing a holiday home solely for personal use, its investment value might be less favorable as it increases your overall expenditures.

However, you can view it as an investment in future holidays and a potential asset to sell down the line. Assessing whether it’s a favorable time to invest in property is crucial.

Costs of buying a second home

When purchasing a second home, various additional costs come into play, influenced by the property’s intended use, whether as a buy-to-let investment or a holiday home.

In addition to standard costs associated with primary residences, such as legal fees, building insurance, and arrangement fees, you should also account for the following:

1. Stamp Duty: Buying a holiday home or buy-to-let property incurs higher stamp duty compared to your primary residence. An additional 3% stamp duty surcharge applies to “additional properties,” imposed on top of the regular stamp duty.

2. Holiday Home Bills: Managing a second set of bills for your holiday home is essential. These include expenses like insurance, energy bills, council tax, maintenance costs (imagine dealing with two broken boilers in winter), and decorating expenses.

3. Council Tax for a Holiday Home: Similar to your primary residence, a holiday home is subject to council tax. The amount varies based on the home’s value and location. Some local authorities offer a council tax discount for second homes, typically resulting in a 10% reduction.

4. Buy-to-Let Mortgage Deposit: When applying for a mortgage for your second property, you’ll need to specify its purpose. If you intend to rent it out, you’ll require either a buy-to-let mortgage or a specialized holiday-let mortgage. This often entails a larger deposit compared to your initial home purchase, typically requiring at least a 25% deposit, a favorable credit score, and the willingness to navigate the house-buying process once again.