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What are the implications of purchasing second homes that are not buy-to-let?

There is an increasing trend in second home ownership, both in the UK and further afield.

Second home ownership – excluding investment properties – has topped 250,000 for the first time according to government figures, though Savills has suggested that the true level of ownership may be as high as 350,000 homes in England and 260,000 abroad.

Approximately 50% of second residences in the UK are holiday homes and residences for people working away from their main home make up another 20%. There are now some local authorities in England where one in three homes are second homes, used only at weekends and holidays.

For those looking to purchase a second home, it is important to consider the tax implications. Although Capital Gains Tax relief is available for first homes, this is not the case with second homes. Buyers looking to purchase a second home as an investment must therefore carefully consider whether any increase in value from the property would in effect be wiped out by Capital Gains Tax.

There are also some counties in England and Wales such as the Lake District where concerns have been voiced for some time about the influx of outsiders buying up properties that locals would have bought if they could have afforded them. In some of these counties, punitive financial measures such as increased Council Tax are either already in place or planned.

Of course, in terms of the legalities there is no difference between buying a second or third home than your first. The conveyancing is exactly the same but the finance terms need to be considered more carefully. Any new lender would need to know that this was a second home and that the buyer has a mortgage with another lender for their principal home. The second lender might be happy with a first mortgage on the new home or they may look to take a second mortgage on the first property as well for added security. This should be resisted if at all possible because, should the second property not value up, then the buyer is paying too much for it.

Don’t forget, of course, that with the pleasure of owning a second home comes the responsibility of all those household bills – water, electricity, gas, council tax as well as the overall maintenance and upkeep.

For buyers thinking of renting out the property, they will need to ensure that their lender will have no objection and then they will need to decide how best to turn the house into a rental opportunity, but that will be the subject of another article.

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