How to finance a holiday home against our currently-owned flat?

plugh

We've bought our council flat, in London, recently valued at £155k. It's completely paid for from our savings, and we never had a mortgage. We can't sell (without penalty of losing some of our discount) before 5 years have passed. In any case I'd like to keep it as long as possible and rent it out. We're in our late 50s. I've got secure employment but only on £21k pa., and my partner works part-time and currently earns about £10k p.a.

Now we'd like to buy a holiday cottage in Wales. Although we want to move there really, we can only stay there occasionally until I find work there. So we'll rent it out some of the time, when we're not there ourselves. Although it's difficult to find guests all year round, comparable holiday lets are about £65 a night. We'd pay someone to keep an eye on it and do the odd job on it, and someone else to do cleaning before and after visitors. We'll do our own marketing and publicity. The aim being to move to Wales as soon as possible.

We don't want to cash in our pensions, and have enough savings to pay about 10% deposit on a mortgage. I'd like to avoid a large debt that we struggle to pay off. Currently we might be able to find somewhere suitable in North Wales for less than £120k.

There must be some opportunity or strategy here that I'm not seeing? What is the best mortgage; do we "re-mortgage" our current place? Surely owning our own place outright is in our favour? What practical ways can go about moving to North Wales instead of waiting five years or until retirement age? If anyone can point us to concise information relevant to our situation, that would be great.

Innys1

Can't wait to see the responses to this one..................

G_M

A BTL mortgage on a holiday cottage will be more expensive than a domestic mortgage, so look at raising cash on your current home.

Standard criteria: LTV; income levels etc

Make sure you understand the holiday let business. The LL link below wll give you a flavour, but holiday let regulations differ from AST letting, so rsearch that properly before you do anything.

* New landlords: advice, information & links

booksurr

you will not get a BTL mortgage on a 120k purchase price with only £12k (10%) of deposit as the minimum LTV allowed would be 25% deposit ie: £30k

the fact you then intend to live there would also make it difficult to get a holiday home as at some point it will no longer be a BTL and so have to convert to a "normal" residential mortgage for which with trivial earnings of £21k you would struggle to meet the affordability criteria

the same applies if you try to take out a mortgage on your ex council RTB. You need to pay fees etc on the Welsh property so where is that cash coming from? You are only able to stump up £12k deposit so would have to borrow £110k, ie x5 your income. Somewhat unlikely !

the fact you own the ex RTB outright is irrelevant if you cannot afford to get a loan secured against it for the size you need to borrow

eddddy

Your proposal is very complex.

Regarding the property in Wales:

If it's a second home...

You would need a second home mortgage
You would need second home insurance

If it's a holiday rental property...

You need planning consent
You'll have to pay business rates
You would need a commercial mortgage
You'll need commercial insurance
etc, etc

If it's a residential letting property...

You would need a BTL mortgage (or consent to let on a second home mortgage)
You would need Landlords insurance
etc, etc

As you can see, it would be difficult to chop and change between uses.

Regarding the property in London...

If it's your primary residence... you would need a residential mortgage, etc etc

If it's for residential letting... you would need a BTL mortgage (or consent to let), etc etc

silvercar

£31k earnings between you....should be able to get a mortgage of about £90k on your current property. Advantage is that it would be a residential mortgage as you are living there.

£12k savings, so you have £102k to spend. Factor in fees, stamp duty, mortgage arrangement etc and you have an idea of what you can afford.

27col

I can't say that I'm very happy with discounts for Council tenants then apparently enabling them to purchase holiday rental property.

G_M

27col wrote: »

I can't say that I'm very happy with discounts for Council tenants then apparently enabling them to purchase holiday rental property.

I agree, but that's really a matter for political debate somewhere, along with the whole right to buy debate, and indeed the broader government housing policy.

OP's circumstances are what they are, and provided he stays within the law he can do as he wishes.

Lleucu

1. The sheer costs of such a project are underestimated, I estimate about £2.5K on the basic costs, if you are going to pay a caretaker and an agency much more. Expectations of holiday renters are pretty high, you will need to provide a very good standard of furniture and equipment, broadband is a must also a tidy garden and a sparklingly clean house. All this is not cheap, plus you need to factor in weekly cleaning and key holding.

1. The likelihood is that some Councils are going to charge a double council tax on holiday homes any discount has gone completely in North and West Wales.
2. Are you prepared for the cost of maintaining an off grid house, it is oil or LPG - very expensive and needs more maintenance than natural gas?
3. £120,000 will not buy very much in North Wales and very little in West Wales in desirable areas.
4. You say you want to retire to North Wales - have you considered learning Welsh, at least a level of courtesy Welsh is important?
5. There are some complex rules about the definition of a holiday home for tax purposes, hopefully somebody else will come and comment.
6. There is also the question of insurance, for old stone houses few providers and pretty expensive.

The politics are relevant - people buying second homes in North Wales attract a lot of criticism ie impact on house prices for locals and on language and culture I know many villages which are like ghost towns.

Sorry to be a wet blanket but these considerations seem relevant to your question.

Lleucu

extra council tax info http://www.bbc.co.uk/news/uk-wales-politics-26875875

Lleucu

tax rules https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323821/hs253.pdf