Why Buy a Second Home?
An increasing number of UK residents are choosing to buy second homes both here in the UK and abroad. Despite the economic downturn a record number of us are remortgaging our existing properties and using the equity to purchase an additional property. Many people do it for financial gain in the hope that property prices in second home hotspots will rise in the future. Others are choosing to buy a second home as a means of funding their retirement or changing their working lifestyle. An increasing number of stressed out urban Brits are snapping up second homes in quieter rural and coastal regions in popular destinations such as Cornwall, Devon, Yorkshire and Scotland. So before you take the plunge be clear in your own mind exactly why you want to buy a second home…
For most people the primary reason purchasing a second home is to benefit from capital gains growth from long-term rises in property prices. The process of gearing is a fairly simple one to understand. It involves a large commitment from you in the form of a mortgage deposit for a minority stake the equity of a property. The bulk of the present market value is paid for by the mortgage. Any significant property prices rise can dwarf your original deposit and hence return huge long term profits. Many investors choose to rent out their second home during the summer months at popular holiday destinations. This is because an increasing number of holidaymakers are choosing to holiday in the UK rather than going abroad. These amateur landlords are increasing in number despite the difficulties in obtaining buy to let mortgage finance.
Many speculators choose to buy a second home at auction. Most seek a building that has become, repossessed, vacant or dilapidated. These property development projects require a good knowledge of building regulations, planning laws, local building contacts and an understanding of what the local property market is doing. Successful developers with strong project management skills can end up with a dream second home completely modernised and decorated to suit their personal tastes. Many other developers will try and resell the property as fast as possible for a quick profit and this is a perfectly sensible reason to buy a second home. However be very careful though that in falling markets the additional value added through redeveloping the property is sometimes swallowed up by falling local property prices.
You may find yourself forced to rent out your second home for personal financial reasons. In which case you must inform your mortgage provider that a change of usage is imminent. In addition your second home insurance policy provider will need to be told if we your property is to be rented out (even on a short-term basis). Some second homeowners are less concerned about rental voids are more concerned about capital gains. If you fall into this category pay close attention to national price trends are the likelihood of interest rate rises in the future. Any adverse fluctuation may create short-term cash flow problems and force you to sell your second home before any significant price rise has taken effect.
Bear in mind that the huge boom in second home ownership has created some local tensions in quiet villages where local people can now not afford to get onto the housing ladder. The increase in property prices has far outstripped any growth in incomes in the last 10 years. As a result many holiday hotspots have become ghost towns in the winter. So if you’re considering buying a second home in a tranquil seaside resort think about security issues of leaving your property empty for long periods of time. In addition take take choosing a property in areas where vandalism more burglary have seen increases due to the ever-increasing number of empty properties.
The boom in the purchase of overseas second homes and holiday homes throughout the 1990s has all but died away with the advent of the credit crunch, recessionary pressures and collapse of confidence in markets. In particular Spain was once a favourite strongholds for first-time Brits seeking retirement homes or second homes in the sun. Now though a combination of the economic factors has now virtually destroyed these markets (leaving hundreds of thousands of properties empty or half finished). If you are considering buying property overseas question your motives carefully. The volatility of the Euro and ‘land grab’ issues should also give you pause for concern before shelling out on that dream second home.
Many Brits prefer to holiday in the UK now and in the comfort of their own second home. Huge rises in the cost of air fares and hotels in mainland Europe and beyond has made staying in the UK a much more attractive holiday destination. It’s also a great way to get friends together who may live far away but would enjoy getting together socially in a comfortable and relaxed surroundings. Similarly many second homeowners can now enjoy a weekend away in the country at their second property as rail connections and motorway links are so good.
Contact Assetsure for a Second Home Insurance quote.