What is Considered a Second Home?

Any property you own, in addition to your main residence, is generally regarded as a second home. There are many reasons why people buy second homes: for investment and buy-to-let, holiday homes, or part ownership with a family member.

If you’re thinking of buying a second home, there are a few things to consider before proceeding:

• What type of mortgage will you need?
• Are you planning to rent the property?
• What are the rules on stamp duty for second homes?
• Are you buying a second home for your children?

What type of mortgage will you need?

There are several ways to fund the purchase of a second home if it is for personal use rather than investment or buy-to-let.

Of course, you can pay cash and buy it outright if sufficient funds are available. Remortgaging may be a good option if you have little or no outstanding mortgage on your main residence, provided the costs of breaking any existing interest rate terms aren’t too high.

If you’re over 55, consider an equity release scheme, such as a lifetime mortgage. This option allows you to release a lump sum from the equity in your primary residence without making any monthly payments. Any interest accrued rolls up until the house is sold when you either pass away or move into a long-term care home.

Equity release options, such as lifetime mortgages, may not be suitable for everyone, as they can impact your long-term financial security, inheritance planning, and eligibility for certain benefits. It’s essential to seek independent financial advice to understand the potential implications and whether this option aligns with your financial goals and circumstances.

Many lenders also offer second-home mortgages, which, as the name suggests, can be used by anyone with an existing property looking to buy another one. The deposit requirements for second-home mortgages are usually higher (typically between 15% and 25%), and the affordability checks are generally more stringent than for first-home mortgages.

The stricter requirements for second-home mortgages are understandable, as your lender will want to be sure you can afford the repayments, especially if you already have an existing mortgage on your primary residence.

Are you planning to rent the property?

If you’re planning to purchase a second home as a buy-to-let or as a holiday rental, your lender will recommend a buy-to-let mortgage (BTL) as the most appropriate form of borrowing.

Affordability criteria are centred more on the property’s investment potential and the expected rental income it can generate.

Stamp Duty rules for second homes

Since September 2022, Stamp Duty on second homes has been paid at a higher rate than you usually pay for your main residence, with an additional 3% surcharge. Stamp Duty is a tax due whenever you buy property or land and is paid and assessed on a tiered basis. The higher the value of your property, the more Stamp Duty you pay.

For your first property, the first £250,000 of its value is charged at 0%. This amount is charged at 3% for a second home, increasing through the remaining tiers. For example, if you bought your first property for £200,000, you would owe no stamp duty, whereas for a second home, you would owe £6,000.

This surcharge doesn’t apply on second homes if their value is below £40,000 and/or if it’s a ‘moveable’ property. If you’re planning to buy a caravan, mobile home or houseboat, then you won’t be liable for stamp duty (but you can’t get a mortgage for these homes either).

If you’ve bought a second home with the intention of eventually making it your main residence, you still have to pay the additional 3% surcharge. However, if you sell your first property within three years, you can claim a refund from HMRC for this amount.

To see how this could work out for the second property you’re interested in buying, use our calculator below:

Buying a second home for your children

Helping your child get on the property ladder by either buying a property outright or as a part-owner, while a generous gesture, will also count as a second home for tax purposes.

To avoid this, consider speaking with a mortgage broker to explore other ways of assisting them, such as contributing to their deposit or considering a joint borrower, sole proprietor mortgage, where you can help with repayments if they experience financial difficulties during the loan term.