Buying a second home: why do we do it?
More and more people have two homes. One reason for the growth in numbers is that the economics of buying a second home have never been better. Mortgage rates, though rising, are still low, and council tax reductions of up to 50 per cent are still in operation (though this may not last for ever).
Another reason for the mushrooming of the second home market is the growth in cohabitation. While married couples are liable for Capital Gains Tax on selling the second home, unmarried couples can have two homes without paying CGT. This virtually makes buying a second home a tax-free investment.
A third reason is the boom in property prices. If your home has increased in value and you have a lot of equity, it’s much easier to afford a second property.
So what would your reasons be for buying a second home?
• As a holiday home, either in the UK or abroad. This is the most popular reason. But there are plenty of others.
• As an investment. Many people are disillusioned with the stock market and regard bricks and mortar as a more secure home for their money – whether buying a second home as a buy-to-let, or to resell at a profit. As with other forms of investment, you can lose as well as gain!
• As a pension. Some people like the idea of buying a second home and putting it into their pension pot. This has become possible under changes to pension rules in 2006. There are complicated legal restrictions which apply and you need to look into these carefully. You won’t be able to live in the property when you retire, as it will have to be sold to pay the pension. And DON’T put all your pension into a second home – diversify.
• As a pied-a-terre. More and more people are now buying a second home in town where they work, so they can live there during the week and spend the weekends with their family at their main home in the country. Conversely, some families live in the town home during the week and enjoy their second home as a weekend retreat.
• As a “handout” property. An increasingly popular reason for buying a second home is to provide accommodation for a son or daughter at university. Parents can avoid tax liabilities by putting the property in the child’s name and acting as guarantor for the mortgage.
Whatever your reason for buying a second home, you need to consider it carefully and take the best advice. As long as you go about it the right way, it can be an exciting and profitable purchase.
