Holiday cottage - is this possible?

rippedoffmum

Would be really grateful for any advice, please. I would like to buy a holiday home and possibly partly fund it via holiday lets as well as using it myself/friends/relatives using it.

My main home in my sole name is mortgage-free and worth around £750K. I also have in my sole name another property worth around £300K with a repayment mortgage on it that has about 8 years to run and £29K left to pay.

I have seen a cottage that I want to buy that is on the market for £250K.

I have about £12K in savings and about £18K in debts (mostly student loan).

Would it be possible to get a mortgage to buy the new property based on the equity I have in existing property/ies without a deposit/use equity to fund a deposit? I would also have to find money for stamp duty/fees/solicitor etc.

I don't want to go into too much detail but in case it's relevant I am separated and when my husband and I divorce (likely later this year and expected to be very amicable) he will take ownership of the second property with the £29K mortgage based on what we have already agreed. Will any of this complicate my ability to buy another property myself at present?

Work-wise I have very recently started working on a locum basis and I can anticipate a regular income. While I'm very fortunate to own my home I have virtually no pension provision which is another reason why I think it might be a good idea to buy another property (that is probably a whole other thread).

The place that I have seen that I would like to buy is in an area where I could reasonably expect not to struggle to get holiday lets (near Norfolk coast).

Please be kind if any of the stuff I am asking is daft or you think I ought to know. I know there are a lot of experts on here which is why I am asking. My husband used to deal with all the financial stuff and I have to confess that the personal finance pages of the newspaper go straight in the recycling. It has taken me years to come back on here for advice after the last time I started a thread on another matter and I was berated for being a troll because of ignorance/naivety.

Thanks very much in advance for any advice.

GDB2222

I think I would get the divorce finalised before buying another property. Just in case things turn less amicable.

After the divorce, you will own your own home worth £750k, have income from a job (you don't say how much), and not a lot of savings. So, however you finance it, you will be taking on a holiday cottage entirely financed through borrowings, ie £250k of loans to service. At say 3% interest, that's £7,500 a year.

I don't know the cottage, but the holiday season in Norfolk is fairly short. Are you sure that you can get enough letting income to make this worthwhile? The agents will take around 30% for managing it. Plus you'll have all the usual expenses of running a house.

And it won't really feel like your cottage, because of the stream of strangers using it.

AnotherJoe

I agree, you are jumping too far ahead. Get the divorce finalised first.

Then determine if a holiday cottage is actually the best way of saving for a pension. Most likely it isn't, because of the costs, plus zero tax benefits compared to money you put into a pension that will be available in ten years. This is aside the hassle of managing a remote property.

rippedoffmum

Thanks v much indeed for the responses.

What I would really like to know is if it is feasible to borrow ie will anyone be prepared to lend me the money?!!? I get the impression from your replies that you think this might be possible.

Saying this would be a substitute for a pension is just a bit of self-justification really. I am sure there are much more sensible ways to provide for retirement but they wouldn't bring anything new into my life... I've lived in my house for four years and added a lot to its value by doing it up, furnishing and decorating it myself and I know I'm good at this stuff. Now it's finished I want another project. Also I live in a nice town in Herts but my roots are in Norfolk and it's where my heart is, I have friends there (some only a couple of miles from this place I have found). I lost my dad in 2015 and I'd like to see more of my 77 year old mum who lives in Norwich. The second home I currently own is in North Norfolk, in the fashionable bit. I feel it is morally my husband's because this was the deal when we separated but it is going to be a huge wrench letting it go. This cottage is in a different area of Norfolk that I identified a while ago as where I would love to buy another place if I ever did, less trendy and cheaper. I actually think if I bought another place up there it would make my divorce much easier because I could let go psychologically of the place we have, that was the first property I ever owned and did up and where my husband and I spent many happy years when our kids were small.

I have been looking on the internet and have seen advertisements for agents who let out properties and can advise about getting mortgages for holiday lets, so I might investigate that.

I completely take on board the point that it might not feel mine if it was on holiday lets but I think I could probably afford to buy it without needing the whole mortgage to be serviced by its rental income, so I would be able to use it myself too. But yes, it would feel different and I wouldn't be leaving clothes in the wardrobe etc.

Re income, at the moment I can earn about 4-5k gross a month if I worked three days a week. I'm a doctor (trained later in life and qualified in 2014). I work in A&E and because training in A&E is so unattractive - terrible rotas, horrible stress and ultimately a life expectancy of 65 - most A&E departments have a lot of locum doctors and nurses. Arguably it makes sense because most locums don't work full time and it's difficult to give your all in A&E working full time without becoming completely burnt out. My local department can probably give me as much work as I need without my having to use an agency and work further afield. It's the one area of the NHS that has to keep running, whatever and because I am older for my career stage it makes more sense to locum indefinitely in A&E where I love the work rather than to train in a specialty.

My kids are teenagers and will both have left home within five years, assuming they go to Uni as they both plan to and I'd like to rebuild my links with Norfolk because I want to be there when I am old.

Lots of elaborate reasons to justify doing this...

MSE is mostly populated by very sensible savvy people but this would be a heart decision more than a head one. Which means it almost certainly isn't the most financially savvy thing to do but as long as it isn't completely stupid and crazy... the idea of being in £250K of debt is pretty scary but if all went wrong I could always just sell it(?)

glosoli

Putting aside all other points,

You would be looking at releasing equity from an unencumbered property. Based om your gross annual income of between 48,000 to 60,000, the application would be between 4.2 to 5.2 times your income. Not sure what age you are, and what mortgage terms would be available to you, however I expect it may be tight on affordability because:

1) The lender would take into consideration not only the costs of maintaining your current home, but also that of the other property you own, including the mortgage repayments, and the running costs of the holiday let property itself (council tax, water rates, insurances and so on),

2) It is highly unlikely they would take into consideration the rental income achieved from the property

3) As a locum, are you employed or self employed? Different lenders may have different ways of calculating your income

4) As you say, you would require further borrowing for other applicable costs on what I can gather to be an already tight situation.

rippedoffmum

Thanks glosoli.
Does it make any difference if I got the mortgage on the holiday cottage itself or if I tried to take out a mortgage on the house I already own outright and used the cash to buy the holiday cottage outright?

glosoli

The first issue would be establishing the regulatory status of the mortgage application, as on the one hand you would be renting it to the public, and also would have family living there, and possibly even yourself living there ( regulated buy to let? ). This may narrow down the pool of lenders.

The second issue may be there would be no tenancy agreement in place, which is a default requirement for a large number of lenders considering a buy to let lend. You may be able to consider a loan on commercial terms perhaps. Not really my area of expertise but you could discuss with a mortgage broker the situation and see if they can point you in the right direction.

None the less, if you were to secure the loan against the holiday let itself, I would imagine you would be requiring a deposit of £50,000 to £62,500 as an absolute minimum, plus other costs applicable to the purchase of the house, meaning that in this scenario you would likely have to fo through both a purchase and an equity release application (two seperate processes), so I would imagine it may be easier just to release equity on the main home to keep things simple.

AnotherJoe

hmmm so to answer your question, now you've given that additional info, which is a bit like one of your patients telling you about the small cut on their leg and you putting a plaster on it and then just as they leave mentioning they cough up blood every morning for an hour, I'd say the answer is a "no" because;

You havent mentioned your earnings and just want to borrow on the basis of equity only so I presume no good record of earnings at the moment ?
You would be buying a house as a married person in your own name without a partner,
It would be a holiday let so you'd need a specialist mortgage.

If you are set on doing this why don't you just sell up and move to Norwich ?
If its because of the children wait five years then do it

Get your divorce out of the way first, get a record of earnings under your presumably new lifestyle, maybe you won't be as desperate to buy in a years time and will be more rational about your pension and how you will finance your retirement in Norfolk.

In the meantime, for those five years;

You can visit your mother in Norwich without owning a house there.
You can probably spend more time with her if you don't own a place as you won't be doing maintenance on it when you get there, instead of being with her
You can have holidays in Norwich without owning a house there.(and probably finance those out of the money you aren't spending on maintaining a hardly used house )

This particular house may be great but there will be others.

amnblog

There are a number of ways to do this.


Speak to an experienced mortgage broker when you are ready to progress.

rippedoffmum

Thanks amnblog. Can you elaborate at all?
AnotherJoe re earnings what is a 'good record of earnings'? I don't want to get into it too much but I've earned a five figure sum (gross) since the end of January when my last contract as a salaried employee finished. But I would like to work fewer days over the longer term.