Second home ownership is on the increase, according to recent figures. Three quarters of a million people in the UK now own a second home, up by 30% since the millennium.

It’s easy to see the appeal of buying a second home. From your own bolthole in a favourite holiday destination to a buy-to-let investment or property for a child at university, people have plenty of sensible reasons for buying a second house. Add to that lure of owning an Airbnb and the fact that rental yields are higher than most savings rates.

Maybe you live in South West London and are considering buying a second home out of town. Or perhaps you moved out of the capital during the coronavirus pandemic and are now considering an additional London property in Battersea, Clapham, Wandsworth, Balham or Tooting.

Whatever your reasons, it’s worth knowing the rules about buying a second home and the financial implications. Read on for some answers to the questions that people buying a second home in South West London frequently ask.

How is buying a second home different to buying my first one?

The main differences you need to consider are:

You will pay an additional 3% stamp duty on the purchase of a second home.

If you need a mortgage to buy the home, you will probably be asked to put down a bigger deposit.

If you want to rent the property out to tenants you will need a buy-to-let mortgage, which will require an even bigger deposit and may mean higher interest rates.

Holiday lets need a specific type of mortgage too.

If you sell the second home, you will pay capital gains tax on the profit you make – something which doesn’t apply to your main residence.

How much will I need to put down as a deposit when buying a second home?

How much of a deposit you need to raise to buy a second home depends on what you plan to do with it as well as many other factors. As a guide, if you are buying the property for your own use, you will still need a bigger deposit than for your first home – around 15% – because it is seen by lenders as more of a risk.

If you are looking for a buy-to-let mortgage, you will usually need to put down 25% and for a holiday let, the figure is around 30%.

What other costs should I think about when buying a second home?

Stamp duty on second homes

If you buy a second home, you must pay an additional 3% stamp duty surcharge on top of the standard rate.

Stamp duty rates in England from 1 October 2021 are as follows

You can calculate the exact figure using the government’s stamp duty calculator.

If you sell one of your homes during the first three years, you may be able to claim a refund on the additional stamp duty for second homes.

Capital gains tax on second homes

You will need to pay capital gains tax on the rise in value of your second home when you come to sell it. The capital gains tax allowance is £12,000. You will pay tax at 18%, or 28% if a higher rate taxpayer, on the money you make on the home after the first £12,000. You may be able to claim relief on the tax, if you have lived in the property as your primary residence. Read more on the gov.uk website.

Council tax on second homes

You may pay less – or more – council tax on a second home depending on the rules introduced by the council in the property’s area. Some holiday home owners can avoid paying council tax by accessing small business rates relief. However, the government has announced that from next April owners must prove they let their properties for at least 70 days a year to qualify. Some councils have also added extra charges to discourage second home ownership in their areas.

How do I let out my second home?

You can let the property to tenants as their long-term home, through a letting agent or by going it alone. Alternatively, you can let it out for short periods as a holiday home or short let. What you do will depend on whether you see the purchase as an investment that will bring in a regular income, or whether you want regular access to the property for you and your family members.

Can I buy a second home to help me move house?

Yes, what is known as ‘let to buy’ involves renting out your existing property so you can buy a different one. It might work for you if you are finding it difficult to sell you first home and want to move quickly or if you want to hold on to the original property so you can live there in the future.

If you’re looking for a second home in south west London, talk to us. We’d be happy to answer any questions you have about the costs involved. If you’re considering investing in buy-to-let in South West London, we’d love to tell you more about our services for landlords.