Where nature is in flower and the costs are blooming high

As housing booms in the country, Dido Sandler surveys the expense of owning a second home
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The Independent Online
Next Weekend is bank holiday weekend, which means thousands of townies will be trundling off to cottages in the country. They may even be tempted to think about buying a regular weekend retreat.

Country cottage prices are once again on the up. Robin Thomas, a partner in the Exeter office of estate agent Strutt & Parker, says Londoners seeking second homes have helped push up prices by 15 per cent in the past two years in the South-west. Another Strutt & Parker partner, Jasper Feilding, based in the Cotswolds village of Moreton-in-Marsh, says the resurgence of the holiday-home market in the Cotswolds has helped prices rise by 10-20 per cent in the past 12-18 months.

He says most second-home customers come from the South-east, have plenty of cash, and are prepared to spend pounds 150,000-pounds 200,000 on a weekend cottage, or pounds 300,000-pounds 500,000 for more substantial family homes.

Demand for good-quality country properties is also said to be increasing in Somerset, Wiltshire and the Welsh borders, and in many areas there is a marked lack of supply.

The recovery in prices makes country cottages ostensibly a good investment as well as an investment in your own sanity. But before rushing to buy, take a close look at the overheads. Purchase costs could easily amount to pounds 5,000 or more. Legal, survey and removal fees might cost up to pounds 2,000. Stamp duty is 1 per cent of the value of properties over pounds 60,000. If you take out a mortgage to pay for the new home, and have less than a 25 per cent deposit, you will get stung for mortgage indemnity insurance at around pounds 840 for a pounds 60,000 mortgage. Add to these costs the price of furniture, carpets and the like, and you are looking at a sum that would buy many weekends away in rented cottages.

Nor will you be able to get Miras tax relief on any mortgage. While this is worth a maximum of just pounds 320 a year, it is only available on your main home.

Meanwhile, running costs could set you back upwards of pounds 1,000 a year, although you might be able to get away with paying a single person's reduced rate of community charge at, say, pounds 500 to pounds 600.

Home insurance is generally more expensive for the equivalent amount of cover for second homes. According to Premium Search, a Northampton- based insurance broker, this is because a property empty for most of the time is more likely to be burgled. If, say, a pipe bursts, it is likely to be days rather than hours before the fault is spotted, and by then the damage may run into thousands of pounds instead of hundreds. There are also more exclusions on policies, and higher excesses - the amount of any claim you are liable for. That said, you can often get a better deal by insuring through the same company that covers your main home.

A further potential expense to bear in mind is capital gains tax (CGT) when, eventually, you come to sell the property. You are entitled to tax- free profits on the value of one property, but you have to elect which home should get this tax perk. Unless the new property is worth more than your existing home and you expect it to appreciate more in value, you are likely to be better off keeping the exemption on your main home and taking any tax hit on the country cottage.

In general, mortgage lenders require a 25 per cent downpayment on second homes. Ray Boulger, a consultant at London-based mortgage broker John Charcol, says some lenders offer the same favourable fixed rates or discounts on second properties as for first homes. But Phillip Cartright, manager of Bath-based broker London & Country, emphasises that it can be tricky persuading lenders to give you a second mortgage. For many who have significant amounts of equity in their first property, Mr Cartright explains, the best option is often to remortgage that property with a larger loan and pay for the second home outright with the capital released. He adds that people who are on lenders' standard variable rates may also be able to get a better rate through remortgaging.

To help bear the costs of your country cottage, you may consider renting it out for some or all of the time. But this may also have its costs, and not just the obvious ones from damage caused by your tenants. A lender may make a surcharge to its mortgage rate of up to 2 per cent for properties that are rented out. For some of the best deals on this type of second- property loan, the Association of Retail Letting Agents has details of buy-to-let schemes (01494 431680). Landlords can also make the venture more tax-efficient by writing off expenses, including mortgage interest repayments, against rental income, which is taxable.

Dido Sandler works for 'Financial Adviser' magazine

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