Second Home - with intention of becoming main - advice please

Slubberd

Hi all


My partner and I have a small terrace worth approx £80k no mortgage. It is in a very large city and would be very easy to sell. We are comfortable with no debt - but no big bags of savings either. We do not have extravagant spending habits and will save for things rather than get credit. We have excellent credit ratings.



We often go on holiday to a certain area and would like to give up the rat race and go there to live permanently and to work part time. We are realistic however and are not quite ready to do this as we have decent jobs - this is part of our idea for financial planning if you like.



Since paying off the mortgage we are struggling to get decent interest rates on our savings so we are toying with purchasing a property - that we would move to within the next 5-8 years. We have decent jobs that can contribute to that now.


Our idea is that we have paid outright for our own home. We have a 5% deposit for a £100k property say. We purchase that property with a 95% mortgage. Over this time we are using the property for hols and some friends may use it so no BTL mortgage required.(We would absolutely not be renting it out - it would essentially be a retirement property we would go to live in permanently.)



At the point that we are ready to up sticks - we sell the £80K property and use this to pay off the remainder of the £100K one.


We are aware of the stamp duty charge on the secondary property and things like council tax and standing charges etc for utilities and water.


Has anyone done this successfully? Are there any other things we need to consider?


We thought that as we had the 80K asset and this would always be ours - even if we found we were unable to pay for the second property - we could still sell it if it became an issue.



Your help and insights would be very welcome.

AnotherJoe

A 5% deposit sounds very low for a second house. See a broker and find out whats possible. You might need that much again to cover the extra taxes and purchase costs. How much do you have saved? Also i presume you see the irony of saying you dont like credit and prefer to save for things, and then want to take out a 95% mortgage

90k at say 2 to 2.5% % interest is around £2k a year.
Add on council tax etc you are likely up to £3k a year (and certainly if you pro rate the extra SDLT and purchase costs.
Will /do you already spend £3k a year on holiday rentals in this location? Thats 6 weeks at £500/week for example. Also whats the commute there like? is it an easy trip for a weekend, or impractical? Who will maintain the house in your absence, keep an eye on it, mow the lawns etc? More expense unless you do it in which case, theres also the difference between a rental and a place you own.

eg another downside of owning a holiday home is that when you go there you arent really on holiday in the same way as in a rental, you are doing maintenance even if thats as mundane as gardening but there will likely also be decorating, cleaning, DIY. Might that take the gloss off the location and your holidays, in which to date you've simply turned up, unpacked and enjoyed? Especially if you just go there for the weekend and find all you do is maintenance.

AdrianC

Look at the overall picture, not just each house individually.
You have £80k asset and £5k cash.
You want to borrow £95k, which will leave you with £180k assets.


Assuming your incomes are suitable, then there shouldn't be a problem, but you'd probably be better borrowing it against your main home - second home mortgages are likely to be more expensive, and harder to get, especially at high LtVs.



Against your main home, 95% LtV will mean £76k, so you're £19k short. Even then, rates are likely to be much higher for 95% than 90% - so borrow £72k against your main property, and the remaining £23k against the other.


Can you increase your savings in the short term? If not, how do you plan on repaying the mortgage? Your income will be unchanged, but your outgoings will increase massively - you say that you don't spend much, but you have very low savings. Is it simply that you've just finished repaying your old mortgage?


If you're retirement-home planning, can we ask your ages? Mortgages may well be limited for people with a short working life ahead of them.


You may well be better looking at better investment choices now, and doing a more traditional sell-and-buy chain at the time you retire, or at least holding back on the second purchase until you get more savings behind you.

getmore4less

Another option to get your increased exposure to property is to up size where you are to around £180k your mortgage will be <60% so should be good rates

The extra buy/sell cycle is offset by stamp duty savings and running costs should be lower allowing for a quicker build up of equity.

When you decide to move you should be able to consider a wider range of properties at that time.

need_an_answer

You say you are aware of the CT and utilities,thats good,but check that you are not buying in an area where the unoccupied or only minimal occupation charge isn't extortionately high.

Insurance may also be increased if there are long void periods between occupation particularly winter.
Get some quotes if you can on the type of thing you are looking at,it could be an eye opener if you have not already done so.

My parents in law owned a holiday home,we loved going there on holiday as did a lot of their family and friends enjoy the hospitality of a house by the sea.
They eventually sold it as it seemed everytime they visited it was to do the upkeep, maintenance and garden.

If you don't intend to open it to the rental or holiday market it does sit empty and becomes a very expensive hobby.


Don't just think of the buying of the property but sit down and have a good think about how it sits empty whilst you are waiting for it to become your main home.

All the best with your plans.

p00hsticks

Yes, we've done it and although I've no regrets I wouldn't recommend it.

Like you we had an area that we regularly holidayed in and had decided to retire to in a few years. Then our ideal property in the area came up for sale and we bought it knowing that we wouldn't get another opportunity to get something similar (it was a probate sale and the properties there have all been in the same families for decades).That was three years ago.

I agree with everything AnotherJoe has said.

A main issue will be insurance - especially if you are going to be letting people other than yourselves stay there. Holiday home insurance will expect you to visit the property frequently (ours is every thirty days) and keep it heated. All my annual holiday from work has been used in taking long weekends at the property every month, and some of the drives there in the middle of winter were scary.

We bought the property outright, but the expense of council tax (over £1k a year), water rates, gas, electricity and insurance make it a bit of a money pit - certainly financially we'd have been better off investing the money for a few years and only buying when we were ready to move. And you'll have to furnish the second property so will end up with two lots of furniture.

The end is now in sight for us as I've recently retired, and we're splitting out time between the two properties, getting ready to put our old one on the market.

But my advice to you would be to wait until you are ready to make the move.

Slubberd

Can I just say thank you to you all regarding this. You have all put other questions forward to make us think that actually we would be better off just either saving to put towards a property when we are ready or investing in another house move here - with the hope the value of the property increases. We are in our early 40s so really not at the retirement stage yet - and yes - our former mortgage payment is the savings we now have. Who'd have thought paying off your mortgage was such a pain in the !!!.



Special thanks to P00hsticks - you have made it very clear that this could fast become a chain around your neck if you are not quite ready to move. Your advice was priceless and I wish you all the very best when you move to your property.:beer:

loveka

Yes,I have done this. There is another way!

We remortgage our house and took what amounted to a 20% deposit out.

We bought a 2nd home on a holiday let mortgage.

We rent it out the minimum stipulated for it to qualify as a holiday let for tax purposes The income covers the mortgage and all bills.

We qualify for small business rate relief so no council tax to pay.

From being mortgage free we now have 2 mortgages. But we enjoy running our holiday let and we get to spend a bit of time there now.

We plan to retire there!

In terms of insurance, ours certainly doesn't stipulate we have to go every month!