How to Financially Plan to Purchase a Holiday Home

As the winter days drag on, you likely aren’t the only one fantasising about a sun-soaked holiday. If you’re in constant search of warmer weather, you might be searching to purchase a holiday home so that you can get a dose of Vitamin D whenever you want. Alternatively, a holiday home can be a worthwhile investment for those looking to dip their toe into the real estate world and let out the property while it’s not in use. In any case, many experts recommend taking full stock of the financial implications before jetting off for your new home away from home.

Property management

Whether you purchase your home with the intention of letting it for other vacationers or keeping it for your family, you will likely still have to keep up with a good amount of maintenance. For example, if you have short-term renters coming in and out, you will have to shell out for cleaners, durable furniture, possible repairs and more.

Even if your house will remain vacant while you are in your primary home, you may have to pay for someone to check up on the place, maintain outdoor areas and ensure general upkeep. Regardless of your situation, many financial advisers recommend adding a comprehensive list of property maintenance when finalising your home-buying plan.

Mortgage availability

In 2021, Hodge Bank* saw a 173% increase in holiday let mortgage applications compared to 2020. This soaring level of holiday home buyers means that popular destinations are far more competitive. Additionally, banks may see a holiday home purchase as more of a risk when dolling out mortgages. Because you and your family won’t be in the home full time and might be relying on rental income to sustain the mortgage, brokers could see your application as high risk, leading to rejection or a significantly higher deposit rate.

Letting rate

If you choose to let your holiday home, it’s important to plug realistic rental rates into your plan for secondary income. When real estate experts say, “location, location, location,” they may be giving great advice about your holiday home. Widespread excitement over popular holiday destinations is a positive indicator of how much you can charge for your rental.

Because of this principle, advisers often don’t recommend shying away from a more expensive home in a better location if you intend to pay it off with rental income. However, property prices in holiday locations may be disproportionately high now anyway. Because of newly loosened travel restrictions, the desire to jet off to a new place is at an all-time high – meaning that the mortgage rates are following suit. This jump means that your mortgage vs rental rate may not always be consistent until the holiday home-buying hype dies down. But putting location first when choosing a property can aid in protecting your letting rates regardless of the market.

If you are interested in purchasing a holiday home, don’t be afraid to reach out to a trusted adviser to learn more about how to budget for this big purchase.

If you would like to speak with one of our financial planners, please don’t hesitate to get in touch over email at  enquiries@gpfm.co.uk or call 01992500261.

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested. 

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About gpfm  

gpfm are an independent financial planning company dedicated to the provision of personal, professional, and objective-driven advice for our clients. We have been awarded the Chartered Financial Planners title by the Chartered Insurance Institute for offering high quality, independent and informed advice that meets the needs of our clients.

*https://theintermediary.co.uk/2022/01/hodge-sees-173-increase-in-holiday-let-mortgage-applications-in-2021/