Whether you're looking to buy your dream holiday home, or simply want to boost your income with a buy to let, there are lots of reasons why you might consider buying a second property. But before you go ahead, you'll want to be sure it's something you can afford. If you're applying for a mortgage on a second home, your finances will come under scrutiny, so it's best to make sure you're prepared for all the potential costs involved.
Stamp duty on second homes
Anyone buying an additional property in England and Wales – including buy to let, second homes and holiday homes – will have to pay an extra 3% in stamp duty, even if the purchase price is under the £125,000 threshold. Once you've added conveyancer fees, buildings insurance and any other repairs, your total outlay might end up being a bit more than you initially envisaged.
Every mortgage applicant will also need to have their finances stress-tested. This is a future proofing exercise carried out by the lender to ensure you can still keep up with monthly repayments, even if interest rates dramatically increase. Remember too that taking out additional mortgages puts extra pressure on your finances, so it's worth discussing your options with a mortgage advisor before going ahead.
Buy to let mortgages
If you've got plans to rent out a new property, be sure to research the area's rental market before you buy, as you'll need to prove the property is a sound investment to your lender.
The amount you earn in rent will have to exceed an agreed percentage of your monthly mortgage repayments.
To reduce risk, some lenders place limitations on applicants – either with a maximum amount that they can borrow, or on the number of buy to let mortgages which can be held.
Second home mortgage
If you want to take out a second residential mortgage for either a holiday property or second house, your provider will need proof that one of the properties will still serve as your main home. You'll also need to show good reasoning behind buying a second home too.
Buy to let mortgages tend to be pricier than residential ones, because any period without tenants in the property would naturally pause the rental income.
Of course, circumstances can change, and so there may come a time that you wish to let out your second property, to do this, speak to your lender about 'Consent to Let'.
Before you go ahead, you'll want to be sure it's something you can afford.