Investing in a Second Home – What are the Options?

Property is often described as one of the safest forms of investment – and for very good reason. While property markets have seen considerable turbulence in recent months and years, the steep rises in property value and interest rates alike are an aberration in comparison with the wide-angle view. Over time, property is the safest way to grow an estate, as it enjoys consistent high demand and appreciates value all the while.

For those of you who are already on the property ladder, you may be considering expanding your portfolio to include a second property for these reasons. But what are the options available to you in this regard – and what are the key benefits and challenges of each?

Traditional Buy-to-Let

The most common way in which people engage with the possibility of obtaining a second home is through a buy-to-let mortgage. The buy-to-let scheme was designed to lower the financial barriers to landlordism, by offering a specific kind of financial product that reduces pressure on initial repayments.

The mortgage is effectively interest-only for the length of the agreement, after which the value of the property is due in full. This enables landlords to capitalise on the rent and earn greater interest on income before being liable to repay. The catch is that interest rates are typically higher, and a large deposit is necessary to secure the home. With recent raises to rates of interest, the buy-to-let has become a much riskier strategy than it has been historically.

Holiday Home

Of course, not all aspirant second-home owners are looking to purely capitalise on their property. Another much more palatable option comes in the form of acquiring a holiday home. There is an abundance of lodges, static caravans and holiday homes for sale in North Wales and in national parks across the country, which enjoy impeccable views of the UK countryside at its best; not only would they be shrewd purchases for annual domestic holidaymaking, but also for potentially bringing in a small amount of income from holiday lets.

Student Accommodation

In considering second properties, particularly where the ambition is to create income from rentals, it is important to consider the demographics for specific properties, and the best options for long-term income. One such demographic is students, with student rental properties in university cities enjoying high demand and commanding high prices as a result. The trade-off is the swift turnover of tenants and the increased risk of property damage. To rent out student accommodation, you would have to be local to the property you rent.

City Apartments

City apartments are another route to significant rental income, given the relatively high rates you can charge per square foot. Young professionals would be the key demographic, looking for both proximities to work and proximity to culture and nightlife. The challenges arise in finding the right property for the right price, in order to balance demand with up-front deposit costs.