Buying a second home

Can I get a second home? 

Yes, you can buy a second home and take out a mortgage. When you buy a second home to rent out instead of a residential mortgage you need to apply for a Buy to Let mortgage.  

How does a buy to let mortgage work? 

Buy to let mortgages are often considered a higher risk to lenders. This means that: 

• higher interest rates and fees may apply 
• higher deposits will be required(usually minimum of 25%) 
• some mortgages are interest only  
• the mortgage may not be regulated by the Financial Conduct Authority (FCA) 

The amount you can borrow is also calculated differently to residential mortgages which generally goes on your income. The amount you can borrow for a buy to let depends on the rental income you are expected to get from a tenant. The lender will want your rental income to be about 25% - 30% higher than your mortgage payment. 
 

As the mortgage is not regulated our Mortgage Advisors cannot give you advice on the most suitable mortgage.  

Example of how this works 

Gill wants to buy a house to rent out. The house costs £150,000 She has a deposit of £37,5000, so she needs a buy to let mortgage of £112,500 This means her LTV is £75%. 
 

She plans to get a 20 year mortgage with an interest rate of 4.7%. Her monthly mortgage payments would be £724, which adds up to £8,688per year. Gill expects to earn £900 each month from renting out the house. This adds up to £10,800 per year. 

Her total investment would be the deposit plus the first year's mortgage payments:  
£37,500+ £8,688 = £48,168. 
 
Gill wants to work out her annual yield, this is the return on the property investment through rent. 
 
She uses the calculation below: 

The annual yield 7.2%, which would be considered a good gross rental yield. This helps her decide if buying a second property is financially worthwhile. 

Do I need to meet certain lending criteria? 

Lending criteria is basically a list of things you need to meet to get a mortgage from a lender. 
 

For example, we ask that you meet the following:  

• are over the age of 21 
• own no more than 3 buy to let homes 
• want to buy a home with an energy performance of E or above 
• no more than 4 applicants on one mortgage 
• are looking to borrow up to 75% of the home's value 
• a minimal rental income 

Will I pay stamp duty? 

It will depend where you live. In England you will pay an extra 3% of stamp duty on top of the normal rate, this is called a surcharge. 
 

In Wales you will be charged Land Transaction Tax. You can visit Gov.Wales to work out how much you will need to pay when you buy a second home.  

Will I pay tax? 

You will need to pay tax on the profits you make on your buy to let. The amount you need to pay will depend on the rate of tax you pay.  
 

Capital gains tax 

You will need to pay a percentage of your rental profits in capital gains tax (CGT). If you sell the property for profit you will also need to pay CGT. 

Income tax 

The income you receive from rent will be taxable. The amount you will be taxed depends on your Income Tax Band. 
 

Visit Gov.UK more information on paying tax. 

What should I consider before buying a second home to rent? 

You should think and plan for the following scenarios to ensure you can maintain your mortgage repayments: 

• when there is no rent coming in 
• if you need to make repairs to the property (extensive or minor) 
• If the value of the home decreases and is worth less than your mortgage home 

Can I get a buy to let mortgage for a holiday home? 

If you want to buy a home to use as a holiday let you will need to take out a Holiday Let mortgage. This is because the tenancy of a holiday let is either days or weeks, whereas a Buy to Let is for permanent residency. The HMRC also set certain rules for holiday lets which differ from Buy to Let.