Bricks and money
If you harbour dreams of buying your very own holiday home, follow our expert guide to help you decide what to buy where, and how to finance it
Seaside properties, plus do you still need a landline?
TO LIVE IN OR LET OUT?
Your choice of holiday home and the way you finance it will depend on whether you want to keep it for personal use or generate income. Also an extra three per cent Stamp Duty, on top of regular tiered Stamp Duty, is now payable on second-home purchases in the UK and abroad.
With increasing government restrictions on mainstream buy-to-lets, property sales for holiday lets are booming. They’re regarded as a trade rather than an investment by HMRC so, for tax purposes, mortgage interest costs are deductible from any rental income and capital allowances are available to tackle wear-and-tear.
But there are strict rules on what qualifies as a holiday let. An HMRC spokesman explains: ‘The property must be available for at least 210 days a year, and must be let commercially as furnished holiday accommodation to the public for at least 105 days in this year. You can’t count the days you let to friends and family at zero or reduced rates as this isn’t a commercial let.’ Check the terms of any lease, as it may prohibit sub-letting.
WHAT TO BUY
Even if you don’t plan to let your holiday home immediately, it makes sense to future-proof your choice. ‘Most period cottages are small and face a lot of competition in the rental market,’ says Andrew Soye, director of specialist company Character Cottages (character-cottages.co.uk). ‘Unless it really stands out from the crowd, you’d be better off with a larger property, as these command comparatively higher rental prices and perform well with lettings throughout the year.’
Ensure there’s some capital growth too, so be honest about the location. Is it about to benefit from a new or improved road, railway line or airport? Or is it already popular with house prices ‘at the top of the market’? Speak to estate agents, but also get the views of local people.
WHAT’S THE LEGAL SITUATION?
At St Ives in Cornwall a ban on second homes is in force, and similar measures could be put in place in other in-demand holiday destinations where housing has become unaffordable for local people. According to a spokeswoman for the
Land Registry, there’s no ‘absolute prohibition’ on the sale of properties as second homes in Areas of Outstanding Natural Beauty in England, National Parks or designated Rural Areas in Wales (separate arrangements are in place for Scotland). But there may be restrictions that allow only people who live or work locally to purchase certain properties.
HOW TO BUY
If you need a mortgage, you’ll require a deposit of about 25 per cent. ‘There are fewer lenders offering holiday let mortgages than buy-to-let finance,’ explains Simon Collins from John Charcol mortgage brokers. ‘Other requirements, such as the rental projections, may be stricter.’ Refinancing your principal family home to raise the purchase price might make more financial sense.
Before you agree a price, check for flood risk or land slip with the Environment Agency at gov.uk, and get two or three home insurance quotes. Factor this and unavoidable running costs such as council tax, water and sewage and energy into your affordability calculations.
HOLIDAY HOME ESSENTIALS
These include a fast internet connection, good heating, easy parking, a convenience store and a children’s playground within walking distance. And, for long evenings, easy-to-maintain outdoor space.