A Guide to Buying a Second Home to Rent Out

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Why Should You Consider Buying a Second Property to Rent Out in 2021? 

For many years, buying a second property to rent out has been a popular choice. 

With the ability to earn money every month through rent, while also being able to sell the property further down the line for a hefty cash profit, UK property investment has proved a hit amongst many. 

But after a record-breaking year in the property market, there has likely never been a better time to buy a second property.  

There are currently four major reasons why investing in a second property to rent out is a good idea in 2021. 

They are: 

1. The average UK rent is higher than it has ever been at £1,061, according to HomeLet. 
2. House prices are rising at their fastest rate since 2004, according to The Guardian. 
3. Savills has predicted that house prices will increase by up to 28.0% in UK regions by 2025. 
4. Time to let out a property is at its lowest ever level, taking an average of only 8.9 days – down from 31.9 days in 2019. 

With these stats in mind, buying a second home to rent out is an incredibly exciting prospect for investors looking to make both short and long-term returns. 

What Are the Pros and Cons of Owning a Second Home in UK 2021? 

Pros 

• Your additional property will increase in value over time, allowing you to sell the property further down the line for a huge cash pay-out. 
• You can rent out the property to tenants for monthly income, currently a record-high average of £1,061. 
• You can buy a second home to live in the UK (investors can live in their buy to let property as long as they haven’t obtained a buy to let mortgage), such as a holiday home or a property abroad, and rent it out on Airbnb whenever you aren’t staying there. 

Cons 

• A stamp duty surcharge of 3% for buying a second home makes the process more expensive. 
• If you plan on renting out your property, there are additional costs to consider, including buy to let mortgages and estate agent fees. 

What Are the Costs of Buying a Second Home to Rent Out? 

If you’ve decided that buying a second home to rent out is a good idea for you, there are some things you need to know before investing. 

Perhaps the most important thing you need to know before buying an additional property is the costs involved. 

When getting onto the property ladder, it’s important to familiarise yourself with the costs of buying additional property with plans to rent. This is so you can be sure you’re financially ready for a buy to let investment. 

Currently, the purchase price of the average residential property is currently £255,535, according to the Land Registry.  

This means the property worth of the average UK home has increased by 7.96% in the last 12 months alone. 

Aside from the upfront cost of residential property, there are several other costs of buying an additional home you’ll need to consider, such as stamp duty and estate agent fees when selling rental property. 

Here is a summary of the different costs of buying a second home to rent out, and the tax on second homes you can expect to pay. 

Buy to Let Mortgages 

For those unable to pay for property prices outright, you will likely have to opt for a buy to let mortgage. 

But if this is your first time buying a second property to rent out, you may not be aware that mortgages work slightly differently for a buy to let investment. 

There are some rules for buying a second home with a mortgage. They are: 

1. You need to earn at least £25,000 per year. 
2. You need a good credit score. 
3. You need to be no older than 75 when the mortgage term ends.  
4. Buy to let mortgages require a bigger deposit (usually around 25%). 
5. Buy to let mortgages are interest-only. 

This means that you will only pay for the interest every month, without touching the overall debt of your buy to let investment mortgage. 

Come the end of the mortgage term, you will then have to pay off the full debt of the property – whether that be by selling the second home, or remortgaging. 

Be sure to compare mortgages for residential property and your buy to let investment to look at the best mortgage options for you. You can also speak to a mortgage adviser to ensure you’re getting the best deal possible.  

Can You Rent Out a Second Home Without a Buy to Let Mortgage? 

It is only possible to rent out a second home without a buy to let mortgage if you have outright ownership of the property. 

If you’re using a residential mortgage to pay for the property but decide that you’d like to start renting the property out, you can request to switch to a buy to let mortgage. 

To do so, you would need to speak to your mortgage lender to find out if this is possible for you. 

What About Buying a Second Home and Renting out the First UK? 

Rather than buying a second property to rent out while living in your existing home, another option people consider is buying a second home and renting out the first. 

If you’re still using a residential mortgage to pay for the first property, you may need to switch this to a buy to let mortgage, while using a residential mortgage to fund your second property. 

Stamp Duty Tax 

Another cost involved with buying a second property to rent out is stamp duty tax. 

Again, like mortgages, stamp duty on second homes works differently for those buying a second property, with investors having to pay an additional 3% stamp duty surcharge on the basic rate. 

You can check out the latest rates below as of October 2021: 

You can calculate stamp duty using our 2021 stamp duty calculator by following the link. 

What Are the Additional Costs of Buying a Second Property? 

While buy to let mortgages and stamp duty are likely the biggest expenses you will pay, there are plenty of upfront and ongoing costs to consider. 

Many of these expenses will depend on your goals.   

For instance, if you already have a full-time job and don’t want the responsibility of being a landlord, you can opt to hire a property management company.  

These companies will take around 10% of your monthly rent to deal with all landlord responsibilities.   

Other fees you can expect are: 

• Legal fees 
• Estate agent fees 
• Capital gains taxes 
• Land Registry fees 
• Ground rent  
• Maintenance costs 
• Landlord insurance 
• Income tax

There’s also inheritance tax to think of if you’re planning to pass down your primary residence and additional property. 

To get a full breakdown of how much money you need to buy property in the UK, click the link to check out our new guide.  

You can also check out our buy to let tax guide to learn more about capital gains taxes, mortgage relief, income tax, and more. 

The Types of Second Properties You Can Buy – Best Property Investment Strategies 2021 

Buying a second property to rent out can be a lucrative strategy, but not all strategies are made the same.  

If you’re asking, “how can I buy a second property?” there are plenty of options you can consider. 

Currently, the most popular property investment strategies in 2021 are: 

• Residential Buy to Let – Buying a home or apartment to rent to a single tenant, including families. 
• Purpose-Built Student Accommodation – Buying an apartment that has been specifically built for students. 
• HMO’s – A house of multiple occupancy that houses multiple tenants that share bathrooms and kitchens. 
• Holiday Let/Buying Property Abroad – Buying a holiday home to rent to tourists and holiday-goers throughout the year. 
• Off-Plan Property – A new-build property that is available to purchase before it is finished for below-market rates. You can buy both residential and student property off-plan. 

While the best investment strategy will depend on your own investment goals, for our money, the current best way to invest is either through residential or student property off-plan. 

This is so you can save as much money as possible, while also getting access to some of the most lucrative returns. 

You can learn about all these strategies in our list of the best property investment strategies. 

Or you can check out our ultimate guides on off-plan property, student property investment, and buy to let property – all updated with the latest market data. 

Where to Buy a Second Property to Rent Out in 2021? 

Here in the UK, not all regions offer the same investment potential. 

With variations in house prices, rental yields, and tenant demand, it’s vital to research the best places to invest in property. 

To get the most of an investment, there are several aspects you need to consider to help you make the best investment possible. 

These include: 

• Affordability of Property Prices 
• Rental Yields 
• Property Price Growth Predictions  
• Employment Opportunities  
• Tenant Demand  
• Transport Links 
• Ongoing Regeneration 

Luckily, we’ve done the hard work for you. 

According to the latest market data, the best cities offering all of these aspects are: 

1. Liverpool property investment 
2. Manchester property investment 
3. Birmingham property investment 
4. Luton property investment

All these cities offer fantastic price growth potential, while also benefitting from short term rent and strong tenant demand. 

You can check out our in-depth guides for each of these cities by clicking the links. Alternatively, you can see what other cities make the list by reading our top 10 guide to the best places to invest in property in the UK in 2021. 

Can I Let Out My Second Property Without Being an Investor? 

Many people who own a second property to rent out may not consider themselves buy to let investors if they only let the property out for shorter periods of time. 

Using a second property as a short-term or holiday rental is a popular choice for those who don’t need access to their property all year round.  

However, if you’re using a residential mortgage to pay for your second home, and don’t own the property outright, you will need to check with your mortgage lender on whether it will be possible to do this. 

Alternatives to Buying a Second Home to Rent: What is Equity Release? 

If you’re looking at buying a second home to rent, you’re likely doing so to increase your cash. 

While this is an incredibly effective way of doing so, there are alternatives to consider.  

Perhaps the main alternative is equity release.  

Equity release is a way of getting cash out of your home without being forced to move.  

Here, you can get a lifetime mortgage which allows the homeowner to borrow money against your home, which is then paid off by the sale of your home after death. 

Notably, this is aimed at older residents, with you needing to be at least 55 to secure your equity release. 

You can learn more about equity release from this guide. 

Should I Buy a Second Property to Rent Out? (3 Tips) 

If you have plans to rent and are keen to start earning money as a buy to let investor, then buying a second property to rent out is a great option.  

Buying a second property to rent out in the UK allows investors to make significant earnings through rental income and capital growth, with a number of exciting opportunities available across top UK cities. 

If you’re wondering how to buy a second property to rent out, here are 3 quick and helpful tips for buying a second home. 

1. Make sure you’re financially ready to commit to purchasing a second home – This includes making sure you qualify for a buy to let mortgage if necessary and being prepared for the taxes and extra costs involved. 
2. Spend time researching the property market – Which includes finding out about the best places to invest in property in the UK and focusing on areas with strong growth, demand, and rental yield potential. 
3. Find a suitable second property – This may mean speaking to property experts, such as property investment companies like RWinvest, who can advise you on the best opportunity for your needs and budget.