Buying a second home? Here’s what you need to watch out for

From surprising costs to renting out a property and the myriad complications of buying overseas, Sarah Coles of Hargreaves Lansdown runs through the main concerns of purchasing a second property.

Buying a second home

It’s no wonder so many people dream of a holiday home.

They're drawn by the idyll of being able to head off any time you like for a holiday in your favourite place, without all the bother and expense of booking accommodation and putting up with whatever you find there.

Around 3.4 million people in the UK have made their dream a reality, but before you do so, it’s important to be aware of the potential pitfalls, and how to avoid them.

And if you're thinking of retiring abroad, read our guide.

Cost of buying the property

Unfortunately, there’s a decent chance that your idea of the ideal holiday home is the same as everyone else’s in your chosen destination.

So, whether you’re after a pretty four-bedroom home in a family resort, or a two-bedroom bungalow in a destination that’s popular with older people, you are likely to pay a premium - so do your research to gain a realistic view of the cost.

On top of the purchase price, you’ll need to cover legal fees, searches, a survey and removals. You will also need to factor in the additional costs of buying a second property - including, the 3% surcharge on stamp duty for second properties.

Need a mortgage for your second home? Save money using loveMONEY's comparison site

Costs of running the property

There are a few key expenses to consider:

  • Decorating and furnishing an entire house – plus ongoing maintenance, repairs and redecoration.
  • Council tax. Some councils offer a discount for a second home, whereas others don’t, so check the charges in the area. (read more about cutting council tax costs here)
  • Bills - including insurance, utilities, phone, broadband and media. Because of the standing charges on bills, you can end up paying far more than you expect.
  • Service fees – which are especially common if you buy a flat or house on a development.

You can cut the cost of bills by switching to a cheaper supplier: click here for gas and electricity and here for broadband and here for phone.

Furnishing a second home can be expensive (image: Shutterstock)

The practicalities of owning the property

Second homes take as much effort to run as first homes.

They may face less wear and tear, but you still need to mow the lawn and clear the gutters just as often.

You need to consider how practical this is.

Are you happy to spend each visit keeping the maintenance up? Are you willing to pay someone else to do it? And if something happens between visits that needs urgent attention, how will you manage that?

Added to that, there are additional considerations because the property is unoccupied – ranging from the potential for rodents to move in, to the risk that a small problem like the pilot light going out on the boiler develops into a serious problem like burst pipes.

Read more: how to save thousands of pounds on a new boiler

You may want to pay someone to keep an eye on the property or install smart technology that will monitor your home for you, but all these things come at a cost.

You may also want to consider local attitudes to second property owners. Take Mevagissey in Cornwall, for example, you can still buy holiday homes there, but cannot buy new builds after local residents voted on a ban.

You can no longer buy a new second home in Mevagissey (image: PA)

Issues if you rent it out

If you are planning to rent the property out, the wear and tear and maintenance issues will magnify dramatically.

If you don’t live locally, you may well need someone to take on the property management for you, and respond to queries and requests from tenants, as well as dealing with cleaning and general maintenance.

You’ll also need to think about the reality of letting the property. Are you happy, for example, to give up the chance to visit at particularly popular times?

Finally, there are tax considerations. The first £1,000 of rental income is tax-free, but after that, you will pay tax on the income you receive.

You will need to contact HMRC, and if your rental income is over £2,500, you may have to complete a self-assessment tax return.

Read more: how a holiday buy-to-let can help you pay for your dream home

Cost of selling the property

When you come to sell, you’ll face the usual costs associated with selling - including estate agency fees, legal costs and removals.

If you make a profit that’s over the annual capital gains tax allowance and don’t have any losses to offset against it, you may also have to pay capital gains tax.

There may be some reliefs you can take advantage of, and in many cases, it’s worth talking to an accountant to ensure you don’t pay over the odds.

Get the right mortgage for your second (or first) home on loveMONEY's comparison site

Buying overseas: picking a location

If you are buying overseas, there are additional challenges beyond simply choosing the best place.

Think through the boring practicalities before you get carried away. If you plan to visit frequently, it’s worth calculating the time and expense of the journey.

If you are very reliant on a single airline to take you there, consider what you will do if they change their routes. Also consider joining a frequent flyer scheme, as you'll accumulate points that can pay for future flights (more on these schemes here).

In addition to service charges, there may be other costs you may not face in the UK – such as air conditioning and heating the swimming pool - along with local taxes.

You also need to think about maintenance from a significant distance, and it may make more sense to employ someone to look after the property while you are away, or buy on the kind of development where this is covered by a service charge.

Swimming pools can be expensive to upkeep (image: Shutterstock)

Legal considerations overseas

You should also consider local issues and potential developments.

In countries where governments are looking for new sources of income and overseas second-home-ownership is high, there’s a risk of new taxes and regulations - but at least you'll avoid the range of new taxes hitting tourists who stay in hotels.

While it’s nigh-on impossible to predict exactly what will happen, it’s important to understand likely risks.

If you decide to go ahead, there are legal issues to consider. Property purchase works very differently around the world, so you need to be careful.

In France, for example, the notaire overseeing the sale of the property acts on behalf of both the buyer and the seller, so it’s vital to get independent advice.

In Spain, meanwhile, larger developers will tend to employ a lawyer and offer you their services, but it’s essential to have your own advice.

And in Portugal, you will need to be registered in Portugal for tax purposes before the purchase takes place.

To buy in the Algarve you need to be resident for tax purposes (image: Shutterstock)

Currency fluctuations and extra costs overseas

You also need to consider the impact of currency movements, which can change the costs dramatically.

Take the initial purchase price, for example: if you were buying in France and priced it up on the day of the Brexit referendum, if it took four months for the sale to go through, currency movements could have pushed the price up 18%.

Don't get ripped off - compare currency conversion rates on loveMONEY's site

It’s not just the purchase price either, you also face the risk of currency movements affecting the cost of running the property and paying the mortgage.

At times of currency volatility, it’s worth using a currency specialist to fix your exchange rate, so regardless of how the market moves, you can be certain of the price of the property and the ongoing costs.

Finally, you need to consider the move itself. There may be issues over shipping any belongings you want to take, and the suitability of your furniture for the property and climate.

It may, therefore, make more sense to buy what you need locally.

There may also be one-off costs including estate agency fees, legal fees and local taxes. In France, for example, you can easily spend 10% of the property prices on fees and property transfer tax.

Sarah Coles is a personal finance analyst at Hargreaves Lansdown. The views expressed in this article do not necessarily represent that of loveMONEY.

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