Buying a Second Property in the UK: What You Need to Know

Are you thinking of buying a second property? Here is everything you need to consider, from tax implications and mortgages to how to utilise a second home’s rental potential.

Reasons for Buying a Second Home

Almost half a million households in the UK own a second home. While some use the second property as a weekend getaway, others let it out to tenants—whatever your intentions, you need to decide on how you will use the house before purchasing it as this will determine how much tax you need to pay and the type of mortgage you should apply for.

Here are the most common uses for a second home in the UK.

Holiday home 

One of the most popular reasons for buying a 2nd home is to use it as a holiday or rural retreat from the hustle and bustle of city life. Keep in mind that even if you are using a second home for a limited time during the year, you still need to pay stamp duty (at a higher tax rate than the standard). You also need to think about the maintenance costs involved for the months the home is not in use.

Rental home 

Buying a second house to rent is another popular reason for purchasing a second property, mostly because of the additional income buy-to-let properties provide. Before you go down this road, though, research how much you can charge for rent and check whether the rental yield can cover your mortgage payments and leave you a little extra on the side. 

Speaking of home loans, you should consult a professional advisor before applying for a buy-to-let mortgage since these tend to be more complicated than residential mortgages. Fees and interest rates are higher than with residential mortgages as well. 

You will also need to take out a landlord insurance policy—it will give you peace of mind and facilitate the management of the property. What’s more, insurance is a common requirement among buy-to-let mortgage lenders. 

What is an accidental landlord? 

You can become an accidental landlord if you are forced to let out your second home if you

• Inherit a home that you don’t want to keep, but can’t sell for the price you want
• Want to move house but can’t sell your existing property 

If this is the case, you could switch from a residential to a buy-to-let mortgage which will allow you to rent out the second property. Remember that renting out a house that is under a residential mortgage could get you into trouble with your lender, so it is best to talk to your loan provider before you decide to let property. 

Short-term let

You could turn your second home into an Airbnb—if you furnish it and make it available for rent 210 days a year, it will be classed as a business by HMRC, allowing you to deduct some of the costs, such as the interest on your mortgage. 

Note that not all lenders are willing to lend your money for short-term holiday lets since these properties are seen as riskier due to the high turnover of guests.  

Buying a second home as primary residence

There is an option to nominate your new property as your main residence, but this must be done within the first two years. You will still need to pay stamp duty land tax, but you can claim a refund if you sell the first home within 3 years of the purchase of the second house. 

A house for dependants 

If you wish to continue to provide for your elderly parents or children after they have moved out of your house, you could purchase a property for them, but keep in mind that capital gains tax and even inheritance tax may be due when you gift a home. 

A second home in your favourite holiday destination

Did you know that 13.9 million trips were made by Brits abroad just at the beginning of 2020? Buying a home abroad gives you the chance to enjoy sun and sea all year round, but there are taxes and regulations to consider both in the UK and in your chosen country. 

Buy a home and sell it later

Also known as property flipping, property developers usually buy a home in poor condition, fix it up and then sell it later when it increases in value. As with gifting a home, you will be liable for capital gains tax and on certain occasions, you may have to pay corporation or income tax as well. 

The same rules apply to property developers who buy additional homes as a long-term investment, i.e. holding on to the house and selling it when its value goes up. 

To start a business

A mixed-use property is one that is used for business purposes and as a residence. While stamp duty is lower on these properties (the maximum rate is 5%), there are other taxes you need to pay at higher business rates. 

How to Buy a Second Property

Unless you have savings to buy the property outright with cash, you will need to buy a second home by taking out a mortgage. 

Homeowners interested in purchasing a second home for their own use rather than as an investment property, can either remortgage their existing property, release equity (if they are older than 55) or apply for a new home loan—provided their existing home is unencumbered, i.e. has no loans or debt attached to it. 

Getting a second mortgage 

To get a second mortgage, your lender will require that you have 

• At least a 15% deposit of the value of the home 
• Steady source of income showing that you can afford to pay the mortgage on both properties 
• Good credit score which will show the lender that you have not defaulted on loans in the past

Make sure to consider more than just the interest rate the lender offers and look into other home loan expenses, such as early repayment fees, arrangement charges, and late payment fees. 

Remortgaging

If you cannot raise the deposit for another mortgage, you could remortgage your existing property by using the equity in your home. This way instead of having two mortgages, you will increase your existing mortgage to raise money for the deposit. 

There are several specialist lenders that allow you to remortgage an existing loan or you could get a new deal with your current lender. Whichever option you decide on, make sure you check for early repayment charges that might apply to your loan—in some cases, it might be better to wait until your current mortgage is paid off before you borrow more. 

Buying a second home by releasing equity 

Borrowers over 55 can release the equity in their home through a lifetime mortgage that entitles them to a tax-free lump sum without the need to sell the home. There will be no monthly mortgage repayments—instead, the loan will be repaid (with interest) when the home is sold. 

Buy-to-let mortgage

If you are planning on buying a second property to rent out, you will need to take out a BTL mortgage. Lenders will typically offer a choice between 

• A capital repayment mortgage which works like a traditional home loan;
• An interest-only mortgage which allows you to pay only the interest over the term of the loan and repay the capital when the loan ends. This is more common among landlords who use the rental income to cover monthly repayments and then sell the house to pay for the remainder of the loan.

Keep in mind that buy-to-let lenders will ask for a higher deposit—usually around 25% (or 30% for holiday lets) as well as details on how much you expect to make in rent. Most lenders will want the property to provide income that is at least 125% of the interest due on the buy-to-let loan. 

What Are the Costs Involved in Buying a Second House?

In addition to the deposit, there are additional costs that come with purchasing a second home.

1. Stamp duty 

Stamp duty is payable on all second homes bought for £40,000 or higher.

The SDLT on additional properties is also higher than the one paid on one’s primary residence, usually three per cent above the normal rate. 

Property value	Stamp Duty rate on first homes	Stamp Duty rate on second homes
Up to £250,000	0%	3%
£250,001–£925,000	5%	8%
£925,001–£1.5 million	10%	13%
Over £1.5 million	12%	15%

(England and Northern Ireland, as of September 2022. Different rates apply in Wales and Scotland)

So, how much tax do you pay on a second property in the UK?

Stamp duty increases incrementally with the price of the property. So if you buy a second home worth £300,000, you will pay 

• 3% on the first £250,000, which equals £7,500
• 8% on the remaining £50,000 which equals £4,000
• Total amount payable: £11,500

Note: Stamp duty is payable on second properties abroad as well, but not on ‘movable’ homes such as houseboats and caravans. 

2. Capital gains tax

CGT is not payable when you buy or sell your principal residence, but it does apply when you sell your second home and make a profit higher than the capital gains allowance (£12,300 per individual).

How much you will pay depends on your income. At the moment, basic rate taxpayers pay 18%, and higher rate taxpayers 28% in capital gains taxes. You can learn more about capital gains tax and how to avoid it here. 

Note: The capital gains allowance will be reduced to £6,000 from April 2023 and to £3,000 from April the following year

3. Council tax

You might also be required to pay council tax on second homes, although this will not cost extra since many councils offer a discount on properties that aren’t occupied all year round. 

Council policies vary from one area to another—for instance, some councils might charge you more if the home has been empty for two years. Check with your local authority for more information before buying the home. 

Note: Council tax is not payable on holiday lets. 

4. Income tax

Homeowners that receive rent from their second properties will have to pay income tax on the money they earn. Although this is taxed at the same rate as the rest of your income, earning more a year might push you into a higher tax rate, so you will have to pay more tax on what you make. 

Note: Previously, you could get more generous tax relief on mortgage repayments on your buy-to-let property. However, these have been capped at a 20% tax credit since April 2020 (higher-rate taxpayers used to get tax relief at 40%). 

5. Insurance 

Whether you are renting out the home or using it as a weekend bolthole, the property and contents need to be insured under a separate second home insurance policy—you cannot legally cover two properties with one policy.

Landlords can take out a standard insurance policy that will cover most common issues, such as leaking roofs, accidental damage to appliances and liability cover in case of third-party injuries on the property.

Note: Standard home insurance policies do not typically cover houses that are vacant for a month or two. If you have a holiday home that is empty for more than 30 days, you will need to take out a specialist unoccupied home insurance policy. 

6. Utility & Maintenance cost

Owning a second property comes with other costs in addition to tax and insurance, such as 

• Utility bills (electricity, water etc);
• Maintenance and potential repair costs
• Furnishing and fixing up the second home 
• Property management company (most landlords hire one to run the property) 

Landlords also need to think about covering utilities and maintenance costs while the property is between tenants and there is no rental income coming in. 

Before you buy a second home in the UK, carefully consider whether you have the finances to cover ongoing costs on two properties.

Final Thoughts: Is Owning 2 Properties Worth it?

Buying a second house can be costly. However, if you can afford it, purchasing a second home can be a great investment—even if you are not renting it out you can always sell it once it increases in value. 

Before you take the plunge and invest in a second home, make sure you

• Calculate all the costs that come with owning a second property, from mortgage repayments and stamp duty to electricity bills and council tax;
• Shop around for the best home loan quotes, even if you are remortgaging;
• Try to raise a higher deposit—the more money you put down for the home, the lower your interest rates will be;
• Talk to a mortgage broker or financial consultant on how you can avoid paying stamp duty or capital gains tax. They will also advise you of possible tax deductions you can claim for.