Dreaming of buying a second home? There are many pitfalls to take into consideration before taking the plunge of purchasing your 2nd home.
Many believe that buying and owning a second home is a piece of cake.
This can be the case if fortunate enough to find the right property which suits your lifestyle and needs. And of course within your price range
In reality, there is a whole load of obstacles just waiting to shatter your dreams.
Below are some points to consider before taking the plunge of purchasing your 2nd home:
Buying a home can be very stressful time consuming and takes a lot of money, so sit back evaluate why you are actually doing it.
If it’s a home to retreat to on the coast or in the countryside then consider how often you will visit it. If realistically this only going to visit a few weekends during the summer then it might be an idea to looking into a timeshare or as simple as booking a place through a holiday company.
If you’re buying a property for rental purposes, you need to consider who is aiming to rent to and do extensive research on the local rental market.
Take notice are letting agents windows, full of the same properties they cant rent out?
Then possible the rental market is not as strong as the marketing people have you to believe.
Parents buy student houses in the town where their offspring are going to university so they can provide them and their new friends with a place to stay and make some extra cash into the bargain. But need to consider if offspring is 200 miles away, and then having to maintain the property will start to become a stressful task with a mammoth commute.
And what if you need to hire a local tradesperson who you can trust to do a job properly without ripping you off? This is a whole lot more difficult if you don’t know an area at all.
student market is not to be scared of, just consider somewhere closer to a home where you can keep an eye on things in person, you know the area and hopefully have a network of local tradespeople who you trust and can tap into.
Professionals sometimes buy a smaller property close to work while their main residence is out of town which they only stay in over the weekends.
Make sure you have a good scout of the area and look for potential problem spots – are there student halls nearby? Is the area full of noisy bars and nightclubs? How far is it to the main train station for that quick getaway on a Friday night?
Unfortunately, this is the part where major problems can start before you have even acquired your second property.
Have you found that dream second property but the budget is tantalisingly just out of reach unless you make some big sacrifices elsewhere in your life?
If you have the money to buy something outright but it’s not quite what you want, should you go down this route instead?
The key thing is to sit down with your calculator and be brutally honest with yourself about what you can and cannot afford.
If you are planning to take out a second mortgage then have a cap in mind as to what you can afford.
Factor in a buffer for unforeseen circumstances as items such as broken boilers can come with eye-watering bills.
There are tax implications to buying a second property too.
Since April 1, 2016 there has been a three per cent stamp duty surcharge in place on second homes.
It works on a tiered system so second homes with a price tag under £125,000 now attract a three per cent charge instead of zero per cent.
Properties between £125,000 and £250,000 now have a five per cent rate (up from two per cent).
For the super wealthy, second homes carrying a price tag of over £1.5 million will be attracting a 15 per cent charge, instead of 12 per cent.
Should you remortgage your first home or use it as a guarantee to finance the second property?
What type of mortgage can you get on a second property and will this be dictated by its use, e.g. buy-to-let?
Timing is a big thing to consider.
Maybe you’re due a big promotion at work so you would be able to double the size of your deposit by just waiting for a year or two before taking the plunge and buying that second property.
This is a difficult one as the old adage about ‘getting what you pay for’ applies just as much to property as it does everywhere else.
Sure, a cute but run-down, neglected cottage in the middle of the country may well look like the bargain of the century but, if it needs tens of thousands of pounds spending on it to make it inhabitable, then it could be a poisoned chalice.
If you are very practical and skilled then this could be the way forward but for those who don’t know one end of a chisel from the other, then the financial and mental costs of trying to spruce up an old property yourself can be both prohibitive and ultimately counter productive.
This is a tricky line to tread so think about how much budget you have to play with when it comes to renovating the property and that will dictate how run-down, and therefore cheap, your purchase can be.
Unfortunately, the cost of owning a second property doesn’t end once you have signed on the dotted line and taken delivery of the keys.
If you are using your second property yourself, as opposed to entering the rental market, then you will have to cover everything there as you would at your main residence.
This includes items such as house insurance, broadband, telephone and TV licence and that’s alongside general, day-to-day bills like electricity and water.
Sure, these shouldn’t be anywhere near as high as at your main abode, especially if you are only using your second home for a few weekends a year, but it will probably still need heating throughout the winter to stop the pipes freezing whether you are there or not.
This should form part of your budget planning when deciding how much cash you have to play with.
One way to share the burden, stress and cost of buying a second property is to team up with some family members or close friends (but pick some you can trust).
Banks should be receptive to having multiple names on a mortgage contract provided you can prove that everyone has the financial means to keep up with the repayments.