If you have already gone through the property buying process, you may have considered the possibility of building your current portfolio by purchasing a second home.
There can be several reasons that lead to this decision, but regardless of the rationality behind the investment, it is important to be aware of the different pros and cons that are associated with the purchase of a second home.
It is for this reason, that the team here at White Horse Surveyors have put together the following article, detailing all the key benefits and limitations of purchasing a second home…
There are many benefits to owning a second property, but some of the main factors include:
- Holiday home – If you live in the city and long for a bit of solitude, a second property can act as either a rural retreat, beach-side getaway, or general staycation home. What is more, when you are not occupying the property, you can continue to generate profit by letting it out to other holiday makers.
- Future investment – As with any financial venture, it can sometimes be more beneficial to put your funds into a physical asset that has the potential to grow in value over time. Alternatively, if you have any younger family that are struggling to get onto the property ladder or older relatives that require housing, the purchase may present an opportunity for them.
- Workday Base – If you are required to frequently travel long distances for work, it can help to have an additional property that is situated closer to your office/place of work. This can potentially save you a significant amount of money and time spent commuting between the two locations.
- Additional income – As was previously mentioned, one of the more common uses for a second home involves renting it out to tenants. This can provide a steady stream of income to supplement your current earnings and eventually go towards building your portfolio further.
Depending on which of these options appeals most to you, it is important to take the purpose of your purchase into account when viewing homes. If the property is not fit for the intended purpose, then these benefits may become redundant.
On the other hand, ownership of a second home also comes with many unique challenges and difficulties, including:
- Difficult to obtain a mortgage – Due to the added responsibility of maintaining another series of mortgage repayment, lenders will be more cautious in approving your second loan. There will be more expectation to prove you can afford payments.
- Additional maintenance costs – A second home also means double the number of repairs and general upkeep that will be required to maintain the property. If your new home is not local or difficult to get to, this an also cause several logistical challenges that will make it harder to carry this out.
- No Guarantee of Profit – Although the initial investment may prove fruitful, there is also the chance that the value of the property will decrease, and you will make a loss. This is especially true of property, which can be unpredictable and influenced by many factors (economy, politics, neighbourhood, etc).
These limitations should also be considered when looking for a potential second property. Research is key here and it is essential that all these factors should be accounted for before committing to a purchase.
Other Factors to Consider
In addition to the immediate factors listed above, there are also several tax-based considerations associated with second homes that the buyer should be aware of. These include:
This is an additional cost applied to furnished home that are either unoccupied or owned by and individual whose main property is in a different location.
However, providing that your home meets a specific set of criteria, some local authorities offer special discounts on Council Tax for second homes.
For more information on council tax, check out our review on the topic here.
For second homes costing up to £500,000 there is currently a Stamp Duty surcharge of 3%, but this is due to change on the 1st of July 2021 once the ongoing Stamp Duty Holiday comes to an end.
For more details on how your purchase may be affected by the upcoming changes to Stamp Duty Holiday, simply click here.
If you are thinking about purchasing a second home and require independent advice on your best course of action, please do not hesitate to contact our helpful and friendly sales team.
Simply drop us an email via email@example.com.
Or get an instant quote here.
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