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.
Sections
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.
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Costs of running the property
The practicalities of owning the property
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.
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Buying overseas: picking a location
Legal considerations overseas
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%.
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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.