How to Buy a Second Home
There’s a lot to consider before buying a second property, whether you want a smaller pad in the city or a holiday home. From tax to mortgages, let’s take a look at what you need to know.
Why purchase a second home?
Any additional property you own will be known as a ‘secondary residence’, while your main home is your ‘primary residence’. There are many reasons you might buy a second home, including:
- A holiday home
- An investment (e.g. for your children or retirement)
- To ‘flip’ it; do it up and sell for a profit
- To own somewhere in the city, for example to make commuting easier
- To put your savings to better use
- A buy-to-let property you plan to rent out
Before you go any further, you need to be clear on your reasons for doing it and what you’re hoping to get out of the venture.
How to buy a second home
Buying a second property involves some additional costs…
Stamp duty land tax (SDLT)
When buying a second home, such as a buy-to-let property, holiday home, or any additional residential property, you’ll need to pay a higher rate of Stamp Duty Land Tax (SDLT). This includes a 5% surcharge added to the standard rates, making second homes significantly more expensive in terms of tax.
For example, if you’re purchasing a second property for £400,000, you could pay around £30,000 in SDLT. This higher rate applies if you already own another property anywhere in the world, even if your main home is abroad. However, if you’re replacing your main residence, you won’t pay the surcharge as long as you sell your previous home at the same time. If there’s a delay in selling, you must pay the higher rate upfront but can request a refund if you sell your old home within three years.
Use a stamp duty calculator to work out how much you’ll be paying.
Capital gains tax (CGT)
Unlike primary residences, second homes are subject to capital gains tax. This means that if it’s increased in value when you come to sell it, you’ll be taxed on this growth in value.
Council tax
While you may be eligible for a discount, you must pay council tax on second homes, defined as ‘furnished homes’ where no one lives or where the owner has a separate main residence.
Mortgage for a second home – how does it work?
While much of the process works in the same way as buying a home that will be your main residence, there are some key differences.
Deposit
If you need a mortgage to buy a second home, you’ll likely need a larger deposit than usual. In many cases, a 25% deposit is required by mortgage lenders. Speak to a mortgage adviser to assess your options and see what’s available to you.
Higher income
A lender will want to see you can afford the mortgage repayments on your second property, as well as your main home. This may well mean you’ll need a higher income in order to be approved.
Also, as with applying for a standard mortgage, your credit history will be closely scrutinised. Make sure you check your credit score beforehand to see where you stand before lenders do.
Buy to let mortgages
Some lenders consider these riskier than residential mortgages because of void periods. This means you’ll need to provide details of the rental income you can expect to receive. Location will play a role in this as well as property type.
This type of mortgage is usually interest-only too, which means you’ll pay the interest on the loan each month: none of the capital. This will make your monthly repayments lower, but at the end of the mortgage term, you’ll need to pay the loan back in full. Interest rates tend to be higher too.
If you don’t buy a second home with the intention of renting it out, but choose to do so rather than have it sitting empty, you need to check with your mortgage lender before doing so. You may not be allowed under your current mortgage.
Holiday let mortgages
You can’t use a standard buy-to-let mortgage for a holiday home, you’ll need a specific type. This will also depend on its intended use and location. Overseas mortgages are more complicated.
Again, you’ll need a higher deposit: usually you can expect to borrow around 75% of the property price. The more you can save, the better the deals that are likely to be available to you.
‘Staycations’ have skyrocketed in popularity thanks to the impact of the pandemic, so UK holiday lets have become prime real estate for many.
Can you afford a second home?
Ensure you can afford it before progressing; using a mortgage calculator can give you a good idea.
Don’t just look at mortgage repayments, but individual circumstances such as:
- Monthly outgoings (e.g. utility bills, council tax)
- Your income
- Property type & location
How to remortgage to buy a second home
Another option is to buy a second home using equity you’ve built up in your current property, rather than getting a mortgage.
First things first, check how much equity you have in your property. Do this by deducting the remaining amount on your mortgage from the current value of your home.
If you have enough equity, you could increase the mortgage on your main home to release money and purchase a second home. Bear in mind that while you won’t be paying two mortgages, this will make your monthly repayments higher.
What if you’re buying a property to start a business?
If you’re buying a property to start a business, the type of property you choose and how you plan to use it will determine how much Stamp Duty Land Tax (SDLT) you’ll pay. If it’s a commercial property, like a shop, office space, or a plot of land for business use, you’ll pay commercial rates, which are generally lower and don’t include the extra 5% surcharge that applies to second homes. But if you’re buying a residential property to use as a business, such as a holiday let or Airbnb, HMRC still classifies it as residential for tax purposes. This means you’ll pay the usual residential rates, and if you already own a home, the 5% second home surcharge will apply. It’s important to understand how the property is classed so you know exactly what to expect when it comes to costs.
What is ‘let-to-buy’?
Let-to-buy is when you rent out your current home in order to buy a new one to live in. Instead of selling your existing property, you keep it and let it to tenants, usually with a special let-to-buy mortgage, while taking out a separate mortgage to purchase your new home. This can be a useful option if you want to move but hold on to your original property as an investment or if you’re struggling to sell. Keep in mind, owning two properties means you’ll pay the additional 5% Stamp Duty surcharge on your new home, and lenders will assess whether you can afford both mortgages, often taking expected rental income into account.
Need a mortgage adviser?
Having the right mortgage adviser is key; they’ll be able to help you assess your options and find the best deal for you. We can connect you with our experienced panel for no cost. Get a mortgage quote below.
Last Updated: April 9th, 2025
