DH wants to buy a second home

[Janedoe95]

Myself and DS aren’t rich by any means we bought our first home a 2 bed semi a year ago.

he now wants to save and buy a second home just a small apartment to rent out however in the future I’d like us to be buying a bigger home for our growing family

am I being unreasonable will a second home affect our affordability?

we’ve already discussed trying to have a second child in 2024 and I don’t want to be stuck in our 2 bed house because we purchased a one bed apartment.

That sounds crazy if you are still planning on expanding your family. I completely agree with you, this is something to be considered when you have completed your family and they are more self sufficient.

I agree with you.. after seeing so many of those programmes on tv about awful tenants..
May be a risk worth taking if you've got a lot of money to invest, but in your situation, I wouldn't do it..

You’ll also get charged second property stamp duty, and have to put down a large deposit.

Instead of outright saying no, sit down and calculate the figures and ROI - he will then probably change his mind!

As long as it pays for itself (so the rent you receive is higher than the outgoings), it shouldn't affect your future affordability, in fact it may even improve it (another income). That said, profits are slim in private rentals due to unfavourable tax rules on private lettings (unless you have loads), so do the maths carefully.

Also, you would need a desposit, which means that might impact cash you can put towards another home later.

If you are buying a flat check the ground rent / lease issue - do this before paying any money on surveys and solicitors

my son is in a position where the flat he is buying can’t be sold until the the ground rent is removed and new lease is made and neither can any one else selling / buying in his building

All new builds after June 2022 don’t have ground rent or only a peppercorn rent but pretty much any older leasehold building has ground rent and at the moment they are pretty unsaleable and it’s a fairly common issue at present

looking on right move in my city loads of apartments have been sSTC but the sale can’t proceed until this is sorted out

My DH and I are in the lucky position to have two flats and a house - we'd each bought our own flats before living together, and due to an inheritance on his side, when we bought our house we didn't need to sell. We massively lucked out when we bought and only had to pay single stamp duty due to Covid stamp duty changes too.

We're going to sell them. We will need to get a bigger family home at some point, the rental income is minimal, and at some point both flats will need maintenance and/or renovation works which we don't want to invest in for minimal return.

There's no way I'd buy a flat as an "investment" now - even fully managed they're more hassle than they're worth, unless you're going to make it a career. With the tax and the double stamp duty, plus massive deposit needed for BTL mortgages, it would be a very foolish use of money.

Remember you do not get to set the cost of mortgage repayments against tax, which means for most people BtL no longer makes economic sense.

You need to put down at least 25 percent on btl properties and pay stamp duty minimum of 3 percent even if property is under limit for paying it for first house. You need btl mortgage which charges higher I test rates than residential mortgage. Plus more expensive insurance.

Also when you sell it you’ll have to pay capital gains, and the annual allowance for that has been reduced massively over next 3 years

Thank you for your responses! From the sounds of it, definitely doesn’t make financial sense!

@Slowingdownagain thank you from what you’ve said the only thing I could see working if we potentially changed our current mortgage to buy to let when we remortgage and then rented out our home whilst we looked for a new family home hopefully our property would then be a income and we’d still be able to get a slightly larger home

This is how we ended up as landlords. It actually worked out really well for us as put us in a great positon to buy and gets you around the stamp duty implications. Also then you have 3 years without being liable for CGT if you want to sell.

That said, we really don't make a lot of money from it after tax and the mortgage (which is really low). The onyl reason we still have it is because I don't want to kick out our tenants. It's not a money maker!

The capital gains tax when you come to sell is a huge financial loss as well.

Nothing wrong with wanting to invest in property but make sure both you and him understand what you would be getting into. Buying a second house and renting it out sounds easy but it isn't. A lot of people make money from being landlords but you need to understand the costs and understand that there are risks involved as well.