10% of Brits own a second home* and some industry commentators suggest that the purchase of UK holiday lets are on the up. This could be in part due lesser-known areas benefitting from new transport links, or something else launching in the area (such as a luxury hotel). These are areas where house prices may be cheaper at the moment but could grow as the area gains popularity.
That means that people looking to buy a holiday let in the UK can be one step ahead and potentially bag themselves a bargain!
You want to finance a holiday home – what do you need to know?
There are a number of ways you can finance a holiday home, including using any equity in your main home as a deposit, but do note that you will need to ideally have around a 25% deposit to get you started.
Aside from the deposit, unless you are a cash buyer, you will need a holiday let mortgage. It is important to note that a traditional buy to let mortgage (BTL mortgage) is not suitable for holiday lets, due to the different use of the property.
Holiday let mortgages are typically open to applications from anyone who is a UK resident and who has an income of £20,000 or more a year. We do appreciate however, that there may be exceptions. We are always happy to see if we can help you secure a cost-effective holiday let mortgage if you do not meet the normal lending criteria.
What about other purchase-associated costs?
You will also need to factor in other costs associated with buying the property. These will include but are not limited to:
- stamp duty (as at 3rd December 2014, there have been changes announced by the Government to stamp duty, so check their website for the latest fees)
- surveyor and solicitor fees
- buildings insurance
Affordability after you buy
Another consideration you will need to think about before you buy is the affordability of your holiday home, such as:
- if you are applying for a holiday let mortgage, then the rental income ideally needs to cover a percentage of the monthly mortgage payment – this percentage will vary depending on your holiday let mortgage provider
- ongoing costs such as advertising your let property, letting agency fees, contents and liability insurance, maintenance and the costs of furnishing the property
- you being able to comfortably meet the mortgage repayments if your property is empty (which may be more likely due to the winter months). You may wish to use this adjustable holiday let mortgage calculator to get an idea of costs
As your holiday let will also be run (in part at least) as a business, then you will need to keep on top of your income and expenditure – otherwise you will have the taxman to answer to.
The Government website does have some advice online about declaring income on holiday properties, but seeking the advice of an independent professional may be a wise move to ensure you don’t fall foul of the law.
*Independent research carried out on behalf of Enhanced Wealth December 2014