Buying a second home: 7 tips
Around 1 in 5 Belgians owns another property in addition to their family home. Have plans to buy a second home? Read these tips!
Investing in extra property for your own use and/or to let has been a rising trend for years now. This has been driven by extremely low interest rates, which makes it cheap to borrow. But it also stems from Belgians having a record amount of savings set aside and their search for good returns on their money.
Another contributing factor is that Belgians have always believed strongly in bricks and mortar. In total, 57% of Belgians are firmly convinced that property prices will never fall.
Even the Covid-19 crisis hardly dampened demand for property in 2020. For many people, 2020 seems to have been an added incentive to enjoy life more. For example, by buying a second home by the sea to enjoy with the family.
Looking for a second home, too? Then keep these 7 tips in mind.
1. What and where?
People buying a second home have their own reasons for doing so: a passion for a particular holiday destination, a house to spend their retirement in or simply as an investment. How you want to use your purchase dictates the type of property you choose, and its location.
Private individuals generally choose to buy residential property. It is the sector of the market that they are most familiar with. If you choose logistics buildings, commercial property, healthcare-related property, etc., it requires a thorough knowledge of these sectors, both in terms of opportunities and risks.
If the real estate is primarily intended for personal enjoyment, then follow your heart. If you want a return on your investment (for example, from renting it out), let your calculator guide you. Check your plans thoroughly – for example with a property expert, your notary and/or an asset adviser – and do not decide on a whim. Belgium also has a few property associations, including a few for owners of second homes. You can also make enquiries with them before making your choice.
2. In your own name or in your children’s name?
Are you planning to buy an additional property? Then it is best to research not only what, where and when to buy, but also how to buy it.
If you buy property in your own name, your heirs will pay inheritance tax when you die. How much they will have to pay depends mainly on the family relationship and the value of the property. For direct line descendants (for example from parent to child) and between partners, the lowest bracket is taxed at 3% and the highest at 27% or 30%. Check the rates for Flanders, Brussels and Wallonia.
To avoid your heirs paying inheritance tax later, you can also buy the second home in their name, but with the necessary peace of mind for yourself. This is done using a split purchase. The heirs then acquire bare ownership, while you retain usufruct. When you die, your heirs will not have to pay any inheritance tax.
However, it is best to think very carefully before opting for a split purchase. For example: if you are worried about your relationship with your children (in law); if you want to use the house as a family home later (in all regions, the family home is exempt from inheritance tax between the partners); or if you want to sell the house later, etc.
3. A second home abroad
Have you had your eye on a foreign country? Then you are not the only one. Approximately 150,000 Belgians have a second home abroad. The most popular countries are France, Spain, Portugal, Italy, the Netherlands and Germany. Although these countries belong to the European Union, each one has its own rulebook on taxes and inheritance law.
Importantly, you need to take two taxation systems into account: the Belgian one and the foreign one. As is the case in Belgium, there may also be fiscal differences between regions, provinces and cities.
In Belgium, the notary is responsible for handling the purchase. In most other countries, a notary has a much more limited role than in this country, and you will have to work with a property lawyer. In all cases, be sure to seek advice from someone who knows the country and the region well.
4. Flat or house in a holiday or recreational park
Are you aiming to buy a flat or a house in a holiday park? Then keep in mind that there are always joint (freeholder) costs. Some of these charges are fixed and predictable (including administration, fire extinguisher checks, stair cleaning, maintenance of lifts and landscaped areas). Other joint costs are more difficult to predict, such as: problems with the common heating systems, plumbing leaks, blockages in common drains, etc.
Occasionally residents have already approved a renovation to which you, as future co-owner, must contribute (for example, work to improve insulation). The notary will always ask for the administrator's reports to clarify this, but it is best to inform yourself early on in the process.
5. Two homes = two costs
Even though you may not be there every day, you will still have ongoing costs for a second residence: fire insurance, heating, electricity, waste disposal costs, parking or resident card fees, etc.
Tip: the ING Banking app makes it easy for you to keep track of your expenses
In addition to fixed costs, you also have to pay taxes. Most towns and municipalities in Belgium levy a tax on second homes. Specific rules apply to a second home abroad.
6. An alternative: indirect property investment products
Do you just want to invest in property in order to get a return and/or capital gain? Then an indirect (listed) property investment product could be the alternative for you. Especially if the idea of management, maintenance, finding suitable tenants and other aspects, make you anxious.
You can start investing in indirect property products with much smaller amounts of money, you do not have to go to the notary, and there are generally fewer potential problems. Indirect property investing is done on the stock market. You will be investing in companies that specialise in building, letting and/or managing property (logistics property, student facilities, offices, residential property, etc.).
Please note: just as when you invest in physical real estate, investing in listed property products also involves risks.
7. How to finance it?
- Unless you have ample funds of your own, a mortgage credit is usually the logical choice. And with a bit of luck, you might be eligible for a tax deduction on this loan. Second homes may qualify for the long-term savings tax reduction scheme. You can get a 30% tax deduction on your capital repayments and mortgage protection insurance premiums. In practice, the maximum tax benefit can be around €700.
If you rent out your second home, you can deduct the interest from your property income.
Do you still have a mortgage on your family home? In that case, it is possible to use the already repaid portion of this mortgage for the purchase of your second home (subject to the bank’s approval of your application).
Thinking about a second home abroad? Then the bank will probably suggest that you take out a mortgage on your home in Belgium.
- Another option is a bullet loan. During the term of the loan, you only pay the interest, and pay back the loan amount in one go when the term of the loan comes due. This could be a solution for buyers who are expecting a large sum of money, for example from an inheritance, or a lump sum payment on a group insurance policy.
- Group insurance is used for saving for your supplementary, or top-up pension. But you can also use it to finance a second residence. In this scenario, part of the acquired reserves is used for the purchase. This solution is subject to certain conditions.
Dreaming of a second home?
And would you like to get an idea of the total cost of your project? We would be happy to help you make your dream come true.