Mortgage Clinic: 'Is it cheaper to buy a second home together?'

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'My partner and I own our separate homes outright. We want to buy a property about half-way between our current homes that we can use at the weekends and during holidays. First, we'd need a mortgage. Either of us could purchase this home individually, or we could buy jointly. Which is the best option?'
AW, by e-mail

You already own two properties in different parts of the country. Adding a third is bound to complicate matters, mortgage-wise and tax-wise. But if you are set on it, you need to plan carefully to make matters as straightforward as possible.

First, you need to decide who owns the property. If you go for joint ownership, you could arrange a mortgage based on both your incomes. But you might struggle to persuade some lenders to lend to you, if the new property is not the main home for either of you.

If a lender decides that your new house is a second home or a holiday property, they're likely to refuse to give you a mortgage, or only offer one at a more expensive rate. You are likely to run into problems if the new property is likely be left empty for extended periods of time.

According to Melanie Bien, director at mortgage brokers Savills Private Finance, there is one factor that will work in your favour: you don't have mortgages on your current properties. If one of you already had a mortgage, the bank or building society would deduct the monthly payments for that mortgage, before deciding what they would lend for the new home.

This also gives you another option: to raise a mortgage on one or even both of your existing homes, and use that cash to fund the new purchase. Doing this avoids any problems with the second property being left empty or only used at weekends and during holidays.

If you opt for two separate mortgages, though, you will pay more in arrangement and legal fees than if you took out one joint loan. If one of you can raise enough money based on your existing property and salary to fund the new home, and you are both OK with the financial burden resting on one partner's shoulders, this is likely to be the cheapest option.

Tax-wise, a second home is liable to capital gains tax (CGT) when it is sold, regardless of whether or not it is mortgaged. You can reduce exposure to CGT if one of you claims the property as your main residence when you sell, or by setting any profits against your annual CGT allowance (£8,800 each).

But you should take professional advice on both CGT and inheritance tax before you buy the new home, as the tax and ownership arrangements will partly determine your mortgage options.

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