Holiday Home Buyers - Mortgages and Insurances

Getting a second home or holiday home

A second home can be a solid property investment and a good place to relax. There are about 500,000 second home owners in Britain and about two thirds of their properties are in the UK, with most of them rented out for at least part of the year. If you own a second home, or are planning on buying one, you can expect high outgoings, management fees and insurance bills (not to mention the local council tax).

With property prices at an all-time low, however, now might be a good time to buy. Capital appreciation and free use of the place yourself during non-rental periods could make this an enjoyable investment. Unless you can afford all the costs associated with buying and maintaining the property from your earned income, you will probably have to consider letting for part of the year. This could affect your decision on where to buy!

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Follow seven rules:

Choose a good location. Devon and Cornwall are popular, so are other places on the South Coast, but most holiday homes are let for no more than 20 weeks a year. Rents from a Cumbrian hideaway will be less than for one in the South-West, but year-round walking holidays mean many homes in Cumbria are let for 35 weeks or more.
Buy a two- or three-bedroom property. Most holiday lets in Britain are booked by families. If you need only a pied-a-terre, buying a one-bedroom flat would be fine; just don't expect to let it. Larger properties may sound good but only a small number of bookings require more than three bedrooms. Council Tax will also be larger for bigger properties.
Pick an interest-only mortgage. Interest on loans for a rented-out second home can be set against tax, so if you have a lump sum to invest it's best to pay the largest amount off your main home loan, and get a small-deposit, interest-only mortgage for the country cottage. Seek financial advice (see below).
Hire a letting agent or be prepared for hard work. Managing a holiday home involves repairs, passing keys to tenants, changing linen at weekends, grass-cutting, advertising, plus dealing with emergencies such as visitors locked out or requiring medical help. Do you want that aggro? If not, pay the management fees of between 15 and 30 per cent that most agencies charge. National firms such as the Holiday Cottages Group and local firms like Devon's Toad Hall Cottages and Scotland's Scotsell all report the internet providing more than half of bookings. If your holiday home is in a summer-only tourist area, make it work during the winter by using a traditional accommodation agency to find a six month tenant. Ensure they leave in time for you to redecorate if necessary before the summer's weekly lets.
Keep the property up to date. Dishwashers and DVD players are no longer luxuries. More importantly, the fire regulations mean that extinguishers and flame-resistant furniture are musts too.
Get the right insurance cover. Letting agents often insist on public liability insurance of £1m plus, costing between £200 and £450 a year.
Keep complete records of all your costs. Most costs on management fees, insurance, repairs, decoration and essential travel to and from the house can be set against tax and offset against non-property tax bills.

Financial Advice - Mortgages

Mortgages for holiday homes are only offered by a few lenders and after you have trawled the banks and building societies in the High Street, you could easily get despondent. If you click the link above, and fill in the form, a regulated mortgage advisor will take a look at your request and then get back to you.

It may be that you have chosen your holiday home abroad, or you may be staying close to home and looking for a holiday home mortgage to buy a property in the UK. Either way, we will be able to research all the latest interest rates and lenders deals on offer. You will also have to demonstrate that you can afford not just this mortgage but any other that you might have.

If your aim is to let out the property the whole year round, then the better choice of mortgage might be a buy-to-let mortgage which will be treated more as a business proposition, with the amount you can borrow being based on the estimated rental income.

It's a whole different ball-game if your holiday home is overseas. Securing a mortgage with a UK lender on a property overseas is going to be a lot more difficult, though not impossible. You will probably need to find a mortgage lender with operations in the country where you intend to buy. Nonetheless, be prepared for the typical 'ceiling' on your maximum borrowing potential to be no more than 40% of your net income, after current expenditure on your existing home mortgage, debts, bills and the foreign mortgage repayments.

Interest rates on foreign mortgages can be higher or lower than in Britain and are usually variable and a lot mor volatile. You also need to be careful that the loan remains affordable if ther are big swings in currency exchange rates.

Of course it will be very important to take independent advice and secure the services of an English-speaking lawyer locally. Consider engaging one of the specialist companies in the UK who can not only arrange an overseas mortgage for you but guide you through the whole process of purchasing property overseas. Many of these specialists have local legal contacts or partners in other countries.

Financial Advice - Holiday home insurance

You know you need it, but actually getting the holiday home insurance (to cover buildings, contents and public liability) that offers everything to put your mind at ease can be easier said than done. Many insurers are averse to the risks associated with rental properties and the possibility that they will often be unoccupied for long periods at a time.

This is true if your holiday home is situated in Britain, but becomes even more acute if the property is located overseas, where questions of risk and liability can be subject to particular local conditions.

Once again, there are specialist insurers who can arrange holiday home insurance policies underwritten in London and written in English, with terms and conditions that reflect local circumstances. Furthermore, if it comes to the worst and you need to make a claim, this can be done through an English-speaking claims handler.

Recap

So if, having read this, you are fired up to buy your very own holiday home, let’s just recap what you need to do.

Decide whether you are you going to buy at home or abroad. Look at what the aim of buying this property is – for pleasure, investment, or a bit of both; or a long-term let?

Look at your finances and use our quick and easy service to see how much you could borrow based on your financial circumstances

Then draw up a budget to ensure that you could comfortably afford the property, not forgetting to include insurances, letting agents’ fees etc

If all the figures add up, then the real fun can start… house hunting!

The amount a bank or building society will lend to you will depend on how much you (and your partner) earn. At present, you can normally borrow between 3 and 4 times the basic income of the main earner PLUS the income of the other earner, OR 2.5 to 3 times the joint income of yourself and your partner. Some lenders have very strict income policies and others are fairly flexible in their approach. Contact us if you would like more details.

If you are concerned about how much you could afford to pay each month, use our Maximum Loan Calculator to find out how much you could borrow.