Thinking of Buying a Second Home?

Thinking of Buying a Second Property? Here’s my story:

Last year I wrote about developing my family home with the idea of increasing its value. I was fortunate to be able to add value to my property and now that the building work is all but over (it never really stops does it!) we are ready to embark on another journey.

Every year we holiday as a family in the beautiful Lake District, my wife and I have always said we would love to own a property there but have never really been in a position to do anything other than dream, until now.

It seems that the stars are lined up in our favour at the moment as the house has increased in value and we are now looking to release equity and use that to go towards a second home.

We don’t have a big stash of cash anywhere so we are borrowing money to buy somewhere. It is a risky approach but due to the mortgage offerings in the marketplace I feel it is a calculated risk.

If you are thinking this might be something you want to do then read on. Firstly you need to aim for at least a 25% deposit, in my case this is coming from the equity being released from a remortgage. Yo will also need to account for stamp duty and this carries an extra 3% tag on it as it is not going to be a main residence.

Have a think about what you are going to use the property for. If it is solely for personal use then you may be able to get a standard residential mortgage, these are subject to affordability and the lender will assess your income to ensure you can afford to run two properties. There is an interesting product available from Metro Bank at the moment that allows you to let the property for up to 90 days a year. This could help you making the mortgage payments. Also you will only need a maximum of 15% deposit so you can leverage a little here.

Do you want to let the property? If so there are a couple of approaches you could take. Income from the property will be taxed at your highest tax rate so you need to take advice from an accountant in this regard. Inland revenue rules state that if the property is a furnished holiday let and is let for 105 days per year or more the new income tax rules for rental income do not apply and mortgage interest can be a tax deductible expense. If you are taking up a holiday let product the Furness Building Society have a good product but you need a 25% deposit and the rates are not as competitive as a standard residential mortgage. The good thing about Furness though is that they allow you to use the property yourself as well whereas other holiday let providers do not.

This is not the property I have in mind!

At the moment I’m still looking for the right property so have yet to take the plunge. However whether it is the Lake District, Scotland, Cornwall or Blackpool if you are in the position of having a decent amount of equity to leverage then you don’t necessarily need cash in the bank to get that second property.

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY  MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. 

How Surrey University is Driving House Prices in Guildford

Guildford in Surrey is the most expensive university town in the country*. With an average house price of £522,815 according to property site Rightmove; this town (actually a city) has seen prices increase by 26% in the last three years.

Therefore if you’re in the Buy-to-Let market, or perhaps you’re interested in buying somewhere for your child to live in while studying, property in Guildford could be a good investment.

While investing in property in a rising market is a great opportunity if you have the cash, there’s another reason to consider buying in university towns like Guildford. The rental income is not to be sniffed at; the average rental value of a house in Guildford is currently £548 per week, or if you want to rent out a room or two, double rooms in shared houses go for between £450 to £750 per month.

If you’re seriously considering investing in a property for your children to live in with the aim of seeing some capital growth, also consider the rental value of any additional rooms that can be let to other students.

Buy-To-Let Mortgages

Unless you have money in the bank, you’ll probably be looking at taking out a Buy-To-Let mortgage to fund your investment. These are different to ‘normal’ mortgages, as they don’t reflect your salary but instead the potential rental income from the property: although you may find it difficult to get a Buy-To-Let mortgage if you earn less than £25,000.

In most cases you will need a larger deposit than if you were buying your primary residence (usually 25% or more of the property’s value), and interest rates are generally higher too. However, most Buy-To-Let mortgages are interest only, so this could be a good product for you particularly if you plan to sell the property in a relatively short period of time – for example after your child has graduated.

When crunching the numbers and weighing up whether or not becoming a landlord is for you, also consider tax. To start with there is Stamp Duty, which now incurs a surcharge of 3% for people buying a second property. Therefore if you were to buy a property in Guildford paying the current average house price of £522,815, stamp duty will be £31,825. Then you must pay income tax on any rent, and finally when you sell you will have to pay Capital Gains Tax if your profits on the property exceed your personal tax threshold.

If you would like to explore the figures with a specific property value in mind, rental income and Buy-To-Let mortgage, get in touch and we can do the sums.

Without a doubt, the Buy-Let-Market has suffered some blows in recent years, especially with changes to Stamp Duty. However, if university towns like Guildford continue to sustain the growth in property prices that they’ve seen in recent years*, an investment could still be a good opportunity.

When weighing up whether a property is a good investment, particularly for the student market, the following factors will help:

University ranking: The University of Surrey in Guildford ranks 35th in the UK and 247th globally, making it a popular choice for many students. It’s also one of the UK’s leading research universities.

Student population: UofS has over 14,000 students many of whom need accommodation.

Availability of accommodation: UofS has 5,000 rooms in halls of residence, which are rented to first year students. 2nd and 3rd students need to find private accommodation off campus.

Rental values: as mentioned earlier, the average rent of a house in Guildford is currently £548 per week. Naturally student accommodation is typically at the budget end of the market, although not exclusively, local estate agents will be able to give a more accurate rental value for specific properties.

Proximity to university: when searching for property to buy for the student market, identify areas that provide easy access to the campus. The UofS is very centrally located close to Guildford city centre and therefore there are plenty of residential areas surrounding it.

Cost of property: whether a property is a good investment or not will depend on the market value, rental value, the cost of borrowing and ultimately on the market itself. While the housing market has slowed, Guildford remains a very popular town for private buyers and landlords looking for investment opportunities.

If you would like to discuss any of the above in more detail or need help finding a Buy-To-Let mortgage, give me a call and we can explore your circumstances in more detail. Call 01252 759 233 or email info@thesurreymortgagebroker.co.uk

* http://www.telegraph.co.uk/property/house-prices/university-towns-house-prices-have-risen-average-22pc-three/

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY  MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. 

How to Calculate whether you can get a Mortgage for a Second Home

It’s not just first time buyers who are struggling to get accepted onto good mortgage deals these days. Second home owners are having a tough time too, with stricter lending criteria than we’ve seen in the past, and increases in stamp duty, making it harder to afford a second home.

Despite being asked to jump through hoops, the number of second home owners is on the rise. Record low interest rates and rapidly increasing house prices is motivating many homeowners to look into investing in a second property, either as a holiday home for themselves or as a buy-to-let* property.

But getting a second mortgage takes some planning, and could put your main home at risk if you’ve secured your borrowing on it. Here’s what you need to know.

The usual suspects

When you’re applying for a second mortgage, all the usual checks and confounding factors are sure to come into play, only this time they’ve got more clout. Needed a 10 per cent deposit for your main house? You could be asked for 25 per cent for your second. Needed a good credit score for your first house? You’ll need to be outstanding for this one.

If you’ve been through the mortgage process before, you should already know what you’re facing. As far as borrowing goes, you’re instantly a bigger risk to the lenders because you already have one mortgage, so expect them to be twice as tough on everything this time round. If you’ve paid off your mortgage, happy days; getting a second should be much easier.

Affordability Factors

Your mortgage provider will look at three main issues when deciding if you can afford a second mortgage or not. These are:

• Your income: Your lender should ask to see copies of your bank statements, as well as proof of any savings on investments you are benefitting from. State benefits, pensions and any other sources of income should be disclosed and proven here too.

• Outgoings: This is all about affordability, so even if you are desperately keen to secure a second home, you should aim to disclose absolutely all your outgoings at this stage. Think about regular outgoings like utilities and council tax, and those less regular ones such as Christmas and birthdays too.

• Coping with changes: Right now, homeowners on variable mortgages are enjoying record low interest rates, but it’s not going to stay that way forever. You and your mortgage lender will want to ‘stress test’ your mortgage deal to see how you would cope if, for instance, interest rates rise again or if you, or your partner, loses your job.

Honesty is the very best policy at this stage, so try to bring to light everything you know about your own financial situation. If you try to make it look like you’ve got more disposable cash than you really have, you’re only risking falling into financial trouble later on.

Other expenses

Aside of the usual checks, raising a huge deposit and making sure you definitely can afford this second home, you need to be aware of some of the other expenses which are tied in with a second home, and which are generally more substantial than they would have been with your first.

• Stamp duty: Stamp duty on second homes is much higher than that on your main residence. Currently properties costing £125,000 or less are free of stamp duty, but on a second home they will cost 3 per cent. In general, you will pay around 3 per cent more stamp duty for each bracket of house values than someone who is buying a main home.

• Council tax: Council tax is a bit of a grey area, with councils free to offer discounts or indeed to charge a premium as they wish. It’s worth checking out the situation where you’re planning to buy, as some councils can charge double for second homes in their area.

• Fees and charges: Solicitors fees, survey fees, estate agent charges… chances are you had to pay all these things back when you bought your main home, but bear in mind that the costs for a lot of these services has increased substantially since you were last in the housing market. Get quotes and make sure you’re fully aware of all the costs involved.

Being able to afford a second home is a great position to be in, and not a bad way to invest your extra cash. With interest rates at an all-time low and house prices rising steadily, your money will work harder for you in property than it will in a savings account.

If you would like to discuss your plans for buying a second home, and investigate potential mortgage deals, please get in touch. Call 01252 759233 or email info@thesurreymortgagebroker.co.uk.

* If you’re thinking about investing in property to then rent out, you’ll need a specific buy-to-let mortgage product. More about these here.