Second homes can sometimes seem like an outdated concept. Most people nowadays can barely afford one home, and even then, most people have to rent it rather than own it themselves! It’s expensive to try and save up, it’s expensive to leverage yourself out for a mortgage (and then comes the issue of being pre-approved), and it’s incredibly expensive to finally get your hands on a mortgage and then a house and then have to pay all the bills for it!
And if you ever do manage to get a second home, what are you meant to do with it? Are you meant to use it as a holiday home? Are you meant to rent it out? Are you meant to just let it sit out there, collecting dust, wasting your money, until you think of something to do with it? You already have a home, it’s only natural to wonder why anyone would feel the need to have a second one to operate too!
All in all, even thinking about owning a second home can seem crazy. But if you’re good with finances, and you feel comfortable with exploring real estate a little more, then it might just be something worth considering: could you ever afford a second home? Well, we’ve listed out a few pointers below to help you properly assess your living situation, and whether or not you’d one day be capable of upgrading it.
Where Would You Want Your Second Home?
Second homes can be bought all across the world. You can have your residence in your native land and then turn your attention abroad to buy a place on the other side of the world. Or you might just want to own the house currently for sale down the street too – you’ve always had your eye on it. And that’s a big thing to think about: if you ever were to be able to afford to buy another property, where would you like it to be? And more importantly, where would it make the most sense to look for one?
Well, foreign properties are always popular when it comes to the market. Often enough, they can be cheaper to buy than any place in your own country, and there’s a lot of different architectural styles and home amenities across the world. For example, if you’re interested in a bathroom that’s self operating, you might want to take a look at available properties in Japan. Or if you’re someone who loves an older style of architecture, with Gothic features and a more Baroque styling in the interiors, you might want to focus your second home needs on Central Europe.
Either way, make sure you’re thinking about the location of your new home. Location is often quoted as being everything, and if you’re someone who has the money to purchase an additional place alongside your own, you want to be sure the choice is worth every penny that goes into it.
Think About the Stamp Duty
Stamp duty doesn’t affect all homeowners – usually, it’s only pertinent to those of us who own a home over the value of £125,000, if you’re in the UK, and in Ireland, it’s calculated at 1% of the total cost if the home you bought was under €1,000,000. It’s a big tax to think about when you’re about to buy a home, seeing as it’s not covered by a mortgage, nor your deposit, and must be paid separately out of your own savings. And when the time comes to invest in a second home, because you feel you have the finances to do so, you might run into some complications here.
So you’ve sorted yourself out a budget. You’ve got the price of the home at the top, you’ve got the coverage of the pre-approved mortgage just below it, you’ve got your own savings next to that, and it all adds up to a dream amount that’s very capable of purchasing an additional property. Maybe you’ve already moved on to what it’s going to cost to get the place renovated, maybe because you want to rent it out or you fancy living there yourself for a few months throughout the year – it’s up to you! But in all that, have you remembered your stamp duty?
Across most European countries, if you manage to get your hands on another property, you have to pay stamp duty on that too. Even if there are certain sale conditions that usually mean you’d be exempt, such as buying a house that’s below the duty line, you’ll still have to pay!
You’ll Need the Right Mortgage (especially if you plan ‘to let’!)
Now comes one of the hardest parts of managing to afford a second home: managing to get your hands on another mortgage, and the right one at that. After all, repayment mortgages, or interest only affairs, won’t make the cut here. You’ll need an actual ‘second home mortgage’, which are their own type of loan, and have their own standards to follow.
First of all, you’ll have to be cleared for one by your mortgage provider. If you’re already paying off a mortgage, and you’ve been late with a few payments here and there over the years, they might think the liability is too great to hand you another line of credit. But if you do manage to clear this check, you’re going to need to pay a bigger deposit, and you’ll probably have to deal with a higher interest rate as well.
Not only that, but if the second home you’re thinking of investing in is abroad, it’s going to be extremely challenging to find a mortgage provider to say yes to giving you a second home mortgage. And then comes the idea of using a second home for more commercial means; you might want to consider applying for a ‘Buy to Sell’ mortgage, as these can both cover you if you’re looking for funding for a house you’re meaning to flip, or if you’re planning to rent out the house once you’re doing fixing it up.
But if You Are Thinking of Resale
If you’re buying a second home to one day sell on again, you’re going to have to make sure you’ve got a mortgage that allows this, that you’re cleared for a Capital Gains or similar tax when selling day does come along, and that you’re aware of the value of your home and how that can fit into the housing market around you.
Depending on the type of property you have for sale, you’re going to be working with different inflation and devaluation rates; for example, an executive condo resale value won’t be same as the resale value of a fully renovated and newly decorated 5 bedroom house in the middle of the English countryside. You just can’t treat these types of properties in the same way!
So, Could You Be a Second Home Owner?
Only you and your financial record will be able to tell! Of course, these days it’s hard to even find a home for you and your own family, let alone renovating a place for someone else’s, so you might never have even looked at additional property needs. But sometimes, the fancy might just take you!
Make sure you know what you’re doing before you walk into any bank and ask for a second mortgage loan, and then make sure you’re buying the right property. You don’t want to waste your money!
*This is a collaborative post*