Owning a holiday home is a special dream for many of us. But unless you have plenty of spare cash, you will certainly need a holiday home mortgage to buy it.
Holiday home mortgages are only offered by a limited number of lenders, although the number is increasing. Rather than trailing round large numbers of lenders asking if they lend on holiday homes, you would be better off going to a holiday home mortgage broker, who can point you in the right direction straight away.
As you plan your holiday home mortgage, you have decisions to make.
1. Holiday homes in the most popular parts of the UK have become so expensive that they may be out of your reach. Try looking in less well known, but still very beautiful, areas such as Northumberland, the Yorkshire Wolds or South Wales.
2. Holiday home mortgages usually provide a maximum of 70-80 per cent of the property value, so you will need a deposit. You may be able to find this by using the equity on your existing property.
3. Holiday home mortgages can be capital repayment or interest-only mortgages. Obviously a repayment mortgage is preferable in many ways – it means you can get it paid off more quickly and the home will be yours. However, you have to consider whether you can afford repayments at that level, especially if you still have a mortgage on your main property. With an interest-only mortgage, the repayments will be more affordable, but you will have to find some way of repaying the capital. It’s a good method to choose if you are expecting an inheritance at a later date. Of course, you may be planning to retire to your holiday home one day, in which case you can use the proceeds of selling your main home to repay the capital.
4. You have to decide whether you plan to keep the property only for the use of yourself and your friends and family, or if you hope to let it out. If you fancy letting it out now and again to help pay the mortgage, you need to check with the mortgage lender if this is acceptable. If you are actually purchasing it to use as a holiday let business, which has tax advantages, this will be a different type of mortgage. In this case the lender will be looking more at the rental income potential than at the actual property value or your personal income, when deciding how much to lend. This is a specialised type of holiday home mortgage so talk to your mortgage broker for advice.
5. In the current financial and property climate, you would be more sensible to look at your holiday home as something to enjoy and to give you pleasure, rather than as an investment. If it does appreciate in value, or provide a useful rental income, this is a bonus. But choose an area where you like to go on holiday, and furnish the home the way you like it.
You want to enjoy your holiday home and keep hassle to the minimum. Holiday home mortgages are easier to get hold of than they used to be, but you need to be very clear in your mind what you want and how you are going to pay for it. Your mortgage broker is always there if you need advice. Don’t risk coming up against snags, or getting involved in financial or legal tangles that could wreck your dreams – take advice first, and stay on the right track.