15 10 2022

Is it worth buying a second home?


    Escaping monotony is necessary: ​​rest, disconnect and recharge batteries. Some people do it while travelling, but many others prefer to have their own place for it. An exclusive place to spend weekends, vacations or where to retreat during your retirement. A place among pines, caressed by the sea breeze, or the opposite, in the bustle of the city. Be that as it may, the search and acquisition of a second residence is something that many people consider.

    As a result of the COVID-19 pandemic and the telework boom, many people, besides renewing their first residence, sought to acquire a second home. Are you considering this last option? Read on to find out if it is worth investing in a second home.

    What is considered a second home

    If you are thinking about buying a second home, it is important that you know how it differs from a first residence, as it is a relevant issue both for related taxes and for the bank in case you want to request financing. 

    A second home is one that is acquired when you already own another one. In some cases, it will be considered a first residence if certain circumstances arise, such as:

    • Reside in it for a continuous period of 3 years or more. 
    • Inhabit it permanently for at least 12 months from the date of purchase. 

    The second home as a usual residence

    A doubt that usually arises at the time of buying a second home is to know if it can be categorised as a usual residence. And the answer is yes. 

    Your second home can become your usual residence. For this, you will only have to register in it and communicate it to the administration. Turning this new residence into your fiscal domicile will allow you to deduct taxes, since only the usual residence allows you to do so. 

    Is it worth investing in a second home, yes or no?

    When buying a second home, you need to be clear about whether you want to use this new property, as an occasional home or as a long-term investment with the idea of making a profit on its cost.

    We consider both options as investments. If you decide to buy a new property to spend your leisure time in, whether it be holidays, weekends or longer periods, you will be avoiding the costs associated with a normal holiday. It is also an investment in peace and quiet.

    On the other hand, if you make the purchase of a second home profitable by renting it out (either as a holiday home or as your main residence), you may be able to recoup its cost in a few years and begin to make a profit.

    Both options can be combined, it all depends on what you want to do with your second home.

    Financing and mortgage options

    If you are thinking of taking out a mortgage on your second home, whether for your own use or for a future sale or rental, it is important to remember that the conditions are more stringent than for a mortgage on your main home. This is because they involve a higher level of risk.

    Let's look at the conditions that make a second home mortgage different from a primary home mortgage:

    • The maximum mortgage financing. For a second home, it varies between 60% and 75% of the purchase value.
    • The average amortisation period. The mortgage for a second home set by banks is much lower than for a first home. Some offer a term of less than 30 years to repay the money, forcing the applicant to make higher monthly payments.
    • Higher interest rates. There is a possibility that the bank will charge higher interest rates when financing a property for non-regular use.

    Generally, financial institutions will lend smaller amounts when applying for a mortgage to finance the purchase of a second home. However, if the applicant has a good income, a large amount of savings and a stable job, it is possible to try to negotiate with banks to reduce or improve these initial conditions

    For those applicants who don’t have the time or who prefer to delegate the management to an intermediary who is an expert in the matter, there is the option of using a mortgage broker: an agency or a person who is responsible for obtaining the most favourable conditions in terms of mortgage loans.

    Compare different second home mortgages

    In addition to negotiating financing conditions with banks, you can also look for very attractive offers, both fixed and variable.

    Depending on your buyer profile, find out about the different financing conditions that each bank can offer you and choose the one that best suits your needs. Here are two examples:

    • If you have a solid financial history and can meet the funding and bonus conditions, a fixed rate mortgage could be an excellent option to ensure predictable costs.
    • If you are the type of investor looking to finance a second home, you could benefit from an adjustable rate mortgage to take advantage of any interest rate reductions.

    How the second home is taxed: is it worth buying a second home or not?

    In order to assess whether it is worth buying a second home, we need to know the taxes we will have to pay. As you may have guessed, both your main residence and your second home must be declared on your income tax return, although the residence you declare as your main residence will allow you to benefit from certain tax advantages.

    Of course, the taxation of your second home will depend on how you use it. We will not pay the same personal income tax if we rent out the second home, if we sell it or if we keep it for our own use.

    In addition to the notary's fees, municipal taxes and utilities, the taxes to be paid on a second home are as follows:

    • Property Transfer Tax (ITP). If it is a second-hand property, we must pay this tax, which varies according to the Autonomous Community in which the property is located. On the other hand, if it is a new property, the VAT is payable.
    • Real Estate Tax (IBI). This is a local tax whose amount varies depending on the municipality and the cadastral value of the property. It applies to all real estate properties, regardless of whether they are a first or second home.
    • Personal Income Tax (IRPF). Finally, the way in which personal income tax is taxed depends on the profits derived from the rental after subtracting deductible expenses. On the contrary, if you use the home as a second residence, without obtaining any benefit from having it, you are taxed between 1.1% and 2% depending on the cadastral value of the property.

    Where to buy your second home? The Costa del Sol, the best option

    Recently, we told you 5 reasons why you should live on the Costa del Sol. An idyllic place where the climate, culture, gastronomy and exclusivity invite more and more people to acquire their second home here. Their place of rest, or simply properties in which to invest and make profitable.

    If you were already thinking about this area of ​​southern Spain to buy your second home, at Prime Invest we offer you a brief selection of properties that could perfectly become your second home:

    • Evergreen Homes: This residential complex is surrounded by a natural environment in El Chaparral, one of the areas most demanded by golf lovers. Evergreen Homes has gardens, swimming pools and sports facilities such as a gym and paddle courts. Enjoy its modern architecture and its bright interior spaces.
    • Mane Residences: An exclusive urbanisation under construction located in Benalmádena. It has 51 units ranging from 2 bedrooms for €407,000 to 3 bedrooms for €819,000. It offers sea views, large terraces, access to nearby services and a communal swimming pool, providing a unique lifestyle on the Costa del Sol.
    • Bayside homes: Closed, modern, functional and ideal residential complex for living in a privileged area with access to the beaches of Estepona Oeste. It consists of 41 units with 1, 2 and 3 bedrooms, from 233 to 565 €. It offers spacious homes with south-east orientation and sustainable communal areas, including a swimming pool and gym. The units feature design, natural light, porcelain floors, large windows, quartz countertops and porcelain tiles in the bathrooms.

    Have you decided to buy a second home as an investment on the Costa del Sol? Or, are you thinking of buying a second home on the Malaga coast? If this is the case, or if you have any doubts, you can contact the Prime Invest team. We will provide you with a personalised service tailored to your needs. There is no doubt that the Costa del Sol is a great place to buy a second home.

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