How to Buy a Second Home

For many people, buying a second home or property can be a very appealing idea, and around 10% of the UK population have second homes. The process of looking for a second property may be a bit easier since you have been through the process of buying your first house., but things can be a little bit different.

The reason for buying the property and the purpose of the home brings about different rules and regulations. We discuss the different issues that a buyer needs to know in the purchase of a second home. These important aspects include; reasons for buying a second home, how to finance the purchase, the extra costs incurred and the importance of contracting a conveyancer.

Reasons of Buying a Second Home

Most people buying second homes are motivated by having a getaway crash pad. Some want a house outside the city where they could enjoy the serenity and fresh air of the countryside when having a relaxed weekend or a house in the city where they can stay during the working days and go back home to the family during the weekends. In some cases, it is an investment with the hope of the property value going up, while renting it out to cover the cost of mortgage. Whatever reasons you are buying the property, you will be subject to different regulations and rules.

Buyers need to look for a real estate agent who will work to meet their needs to find the right property.

How to Find a Good Real Estate Agent

Having bought your first home you may be familiar with the ways around estate agents. For a second home, you will need to be more careful as you are buying in a locality that may not be very well known to you. You have to find someone who knows the property around that area very well. Here is what you need to check out on an estate agent:

An Understanding of the local housing market

The agent should be conversant with the houses on sale at the same time be in the know of the price ranges of those houses.

 A good transaction History

BE sure to ask for the agents records of previous completed works. The history will help you gauge the capability of the agent in finding the home you want.

Communication Skills

Engage the real estate in talk to evaluate his or her communication skills before contracting them. You have to find a reliable communicator as you will probably be busy with your job. Good communication is a sign of commitment.

Good Negotiation Skills. You can gauge the agent’s negotiation skills through his completed transactions. A success rate is a proof that the agent has good negotiation skills and can get you the best deal.

Are there Extra Costs Incurred?

Yes, there are extra costs. When buying a second home, the first house becomes a primary residence. A buyer must be aware of some extra financial burden that was not felt when buying the first home.

Stamp Duty

In the United Kingdom, second homes are subject to the stamp duty. While buying his or her first home, a buyer is exempted from paying the stamp duty. It is a relief for first-time buyers, and is included in the purchase of any other home that the individual buys. The stamp duty depends on the price of the property they want to call a second home.

Rates are different depending on where you are in the United Kingdom, and if you are buying a mobile home such as a houseboat, and caravan you are exempted from any stamp duty.

Capital Gains Tax

In a scenario where the owner of a second home decides to sell it, the owner is liable to pay the capital gain tax that does not apply to primary residences. The tax applies to the excess cash earned from the increase in the value of the property and not the whole amount you sell the house.

For basic rate taxpayers, the tax is lower than that for higher taxpayers. Basic taxpayers are required to pay 18% while higher taxpayers are required, to part with 28%.

If you plan to use the second home as your primary home, it is important to inform the relevant authority to be exempted from the tax.

Council Tax

Just like your first home, the second property will be subject to council taxes. Second homes are classified, as furnished home and the taxes are applicable whether no one lives on the property. There are discounts given if the home meets certain criteria, and is leased for a certain amount of time.

Costs such as bills still apply in second homes. These bills include insurance and heating tax. You could also spend on renovations and decorations that are not that cheap.

Financing Options for a Second Home

The different ways available to finance the purchase of a second home include mortgages, self-sponsoring and using equity.

Mortgage

Most people who are still paying mortgage on their primary residence are widely worried if they can get a mortgage for the second house. Well, they can apply if they meet some requirements. These requirements are:

• A Substantial Deposit – Most lenders will need a form of commitment from a buyer, in form of a deposit. Most lenders will need a deposit of 25% of the property’s value.
• A Good Credit Score – Just like any other loan, mortgages need to be certain that your history of credit has been smooth and that you are reliable. Lenders will need this before considering giving you another mortgage.
• A Good Income – Since you are still repaying your first mortgage the lenders need to check if you earn enough to service your first home mortgage and the second home mortgage at the same time.
• Proof of Rental Income – If the plan is to rent out the second house, you will have to show your prospective lenders proof of a potential rental income.

Different mortgage facilities give different valuations costs, counsel fee, arrangement charges and early-payment fees, a buyer should be keen at comparing the offers.

Using Equity

Instead of taking another mortgage, a buyer can take into use the equity he or she built up in the repayment of the mortgage on the first home. It is a phenomenon known as re-mortgaging.

Since buyers need 25% of the value of the property they want to buy, they could increase the mortgages they are currently servicing by that similar amount. The important thing is the buyer to check the amount of equity they have on their home.

The equity you have on your property is calculated by finding the difference between the current value of their home and the amount of mortgage they are yet to pay.

For the older borrowers they have they have the option to ask for a retirement interest-only mortgage that allows them to pay interest until they die or enters long term care. The house will later be sold to repay the mortgage.

If the equity is enough to release the 25% needed as deposit, they have the option to increase their mortgages by that amount.

Letting Out the Second Home

In case the reason for buying a second home is to have a holiday home, it can be turned into a revenue generator. As the homeowner, you have the right to let out the house when you are not using it. In some instances, you cannot let out a home on ordinary homebuyers’ mortgage. For that situation, you may have you remortgage your first house or get a specific holiday let mortgage.

You could also opt to rent out your primary home and live in the second home through buy-to-let.

Buy-to-let

This a situation where a buyer lets out his or her current home to raise a deposit for another house or to live in their second home.

If a buyer decides to go this route, they must communicate with their lender as some prohibit letting out a house whose mortgage is yet to be fully paid. The rent earned must also be more than the monthly payment of the mortgage you have to make.

Whether it is holiday letting or let-to-buy, the owner can do it personally or seek the help of real estate managers and services like air BnB. You are allowed to deduct the expenses of maintaining the house before taxation if you rent the property for more than 105 days. Also, it is important to remember that before seeing profits, the revenue will have to settle renovation costs and stamp duty.

Helping a Family Member

A homeowner who is trying to help a relative climb the property pyramid, the property will be considered as a second home and will be required to pay the stamp duty.

Buying to Resale

Some people may buy a second house to try the art of property development. The goal and aim are to profit off on a strong housing market.

The plan is to buy a cheap house, work on it through renovation and extension and then later sale it at a higher price. The problem with this is it only needs people who are risk-takers as housing markets could crush leaving the individual with a house that they are unable to sale while counting loses on the money spent on the house.

Buying to Start a Business

If you are purchasing a property for business and partially for residence, it will be classified as mixed property or semi-commercial. It means that business rates will apply for you but you will have a reduced stamp tax.

Buying at an auction

You could choose to buy your second home at an auction thus eliminating the need of a real estate agent and freeing up funds for the stamp tax and other taxes.

Once you have decided on the locality you want you could contact a nearby auction house that will send you a catalogue. Check out the catalogue, and visit the properties personally to check them out.

For this purchase, if your bid is successful you are needed to pay 10% immediately and the rest soon after. It is suitable if you have the full amount to purchase the house.

Buying a Home is a Legal and Financial Process

The process of buying a house comes along with a lot of financial calculations and decisions. The process can be very tiring and very risky if not handled with a lot of care. For that reason, a buyer should seek the help of a conveyancer. You need to know who a conveyancer is and what services you should expect out of him or her.

What is a conveyancer?

A conveyancer is a specialist who deals with the legal clause in the buying and selling of a property. It is important that though licensed a conveyancer is not necessarily a lawyer or solicitor, though they could be.

Conveyancing Process

The process takes the following steps;

Instructing a conveyancer

The first step is you deciding on a house you want, and you get an offer. After this, you contact a conveyancer who will ask you to fill up documents and draft a contract and terms of business. The contract will set out the costs that you will have to pay and the deposit you have to make. Be careful when using one who was recommended by a real estate agent.

Receiving sellers Draft contract

The seller’s conveyancer will do the drafting after which your conveyancer will go through it. The contract should include; property forms, official documents supporting ownership and other documents relating to the house.

Be sure to check whether the property you are buying is a leasehold or freehold. Freehold means you will own the land on which the property stands while freehold means the land you are on, is leased. Be sure to check by yourself the lease period as it can be challenging to extend.

Searches and Investigation

At this stage, your conveyancer will dig deep looking for other details about the property that could not be seen by just visiting the property. This is done to protect yourself and your mortgage lender.

Searches could include;

• checking if there are any future government infrastructure that will affect the property i.e. a road
• Checking out the land and house title deeds are authentic
• environmental searches to see if the house is near any kind of environmental unfriendly site and chances of the property being affected by acts of nature like floods
•  Checking that there are no leftover liabilities on the property. You could be advised to take a chancel repair insurance.

These searches incur extra costs so be sure to include them in the conveyancer fee.

Mortgage Check

It the responsibility of your conveyancer to go over the details of your mortgage and evaluating it. You will also be required to take building insurance on the property by your lender

Contract Signing

After all inquiries have been answered, and you are satisfied you can go ahead and sign a contract. The contact must include the fixtures and fittings inventory, the date of completion and arrangements for paying the deposit.

Exchange of Contracts

On the agreed-upon date, the deposit is paid, and contracts are exchanged, marking the end of a legal process. At this point, the contract is legally binding. Both your conveyancer and the sellers will read out loud the contacts to ensure that they are similar and record the whole process.

Buffer Days

Between the time the contracts were exchanged to the time of completion, the seller must have vacated the premises and their conveyancer or solicitor have received the payment. This period allows you the buyer to apply for transfer of title deed to your name at the land registry

Completion

For completion to happen, all the payments should have been made, and the seller leaves the keys to the property at the real estate agents office. At this juncture, the process of conveyance comes to an end.

After completion, ensure that your conveyancer paid the stamp duty, you receive your legal documents from the Land Registry that you will send to your lender. Ensure to keep all documents including the estate agents and conveyancer documents and copies of them safely.