Buying a second home - advice please :)

matt1987

Hello all,

I am after a bit of advice regarding a purchase of a 2nd home which will be used as a “holiday home”. . I have used the search function on these boards, and whilst there is some great advice – I cant really find anything similar to my situation.

I am a long time visitor of the North Devon coast, and have family that reside down there. Consequently yearly I am paying out around £6,000 on accommodation in order to visit family. Obviously as someone who makes use of the holiday cottage rental websites, I can see how prices have been inflated very recently, and also how availability has shortened as these coastal towns have become more popular due to the pandemic.

I have since been thinking whether its worth buying a second home in Devon, not only to use for myself when I want to go down and visit, but also to rent out as a holiday let to recoup of the costs.

The problem is, I don’t know where to start. I have identified a new development going up in the location smack bang where I visit, and they have some 2/3 bed accommodation for sale at just over £250k. There is no view however it’s across the road from the beach and a short 5 minute walk into the village centre.  Research on a number of websites would suggest an income in high season of around £1400 per week and £500 - £600 a week in low season.

I currently own my own home with my partner and the last time I checked we had around £160k equity in our current property therefore owning around 50%.

We have around £20k in savings currently and have a joint income of around £80k pa.

I have read that I would need a Holiday Let mortgage? Is this correct? I can see from a bit of research that rates tend to be higher for these mortgages, and they require more of a deposit (mostly the minimum you can get is a 75%ltv which means I would need £65k cash deposit roughly).

We do have savings, but then I think how best would it be to raise the deposit? Re-mortgage house? Take a few low interest rate loans out? Clearly this is going to put my monthly outgoing up further and then having to factor in costs of running another home.

I am sure someone on here has some sort of experience in doing this, or at least started from where I am coming from? Has anyone been in a similar position to me? What did you do and how did you do it?

I have booked in with a financial advisor for a free session – is this a good place to start? Are there any good mortgage brokers that specialise in Holiday let mortgages? Or is there another way of doing it? As far as income is concerned – I am not doing this to make money, I would be happy to break even….. its more for convenience for myself so I can visit more frequently whilst having something to show for it too.

Thank you for reading!

Matt

K_S

@matt1987 Yes, it does look like what you need is a holiday-let product that allows personal use (up to a certain limit, eg:90 days a year).

This area of the market has taken off since covid and currently it's as competitive as I've ever known it to be so that's good news.

You've done the right thing by contacting a broker (I'm assuming that's what you mean by financial advisor?) and it's not really a specialist area anymore tbh. Any experienced BTL broker should be able to do the job.

Raising the deposit - there isn't enough info to say what the best route might be but one common route is indeed to raise capital from one's home, as that's likely to be the most cost effective and have the least impact on your credit profile.

matt1987

Thank You K_S. Well I contacted the financial advisor through this forum so I am hoping what they can offer is advice on how best to do the financial side of things, along with talking through mortgage products. 

I assume the whole idea of a holiday let mortgage is that the bank not only takes into account income/affordability but also income generated from the holiday property too?

K_S

@matt1987 The exact mechanics will differ based on lender criteria. But often a combination of expected income from property (usually based on mid-season average figures) and personal income.

matt1987

K_S said:

@matt1987 The exact mechanics will differ based on lender criteria. But often a combination of expected income from property (usually based on mid-season average figures) and personal income.

Thanks,

Would it be a good idea to get some "approximate" figures from an official holiday letting company in order to present to a bank? Or will they do the maths themselves via a "desktop figure" so to speak?

K_S

@matt1987 You don't need anything formal at this early stage (as what exactly is required documentation wise will differ across lenders) but yes you would need an idea of what the seasons are and expected income.

One example is a letter from a holiday-let agent specifying low/med/high weeks and rent. As it plays a significant role in the max borrowing figure, the lender will not necessarily take it as-is but that's the starting point for when you put in an application.

matt1987

Thanks ever so much for that - massive help!

matt1987

So I made contact with a specialist holiday home mortgage broker yesterday, gave all my details and they seem to think I’d have a very good chance of obtaining a mortgage for a holiday home which is good news!

Now it’s just to see if my current mortgage lender will let me release some equity in my current property (I currently have 48% LTV) if you go by my banks current desktop valuation.

also spoke with a booking agent who has given me figures on a similar Property more or less on the same road that I’m looking, and the figures most definitely work.

Lots to think about! 

SDLT_Geek

I expect you are budgeting for the extra 3% stamp duty land tax for additional properties.

BikingBud

Morally corrupt?

Who will maintain the services; deliver the mail, work in the hospitals, teach in the schools, drive the busses, work in the shops and restaurants, keep the area looking clean and tidy, especially that golden sand when no-one can afford to live locally as everything has been turned into holiday let with vastly over inflated prices?

matt1987

SDLT_Geek said:

I expect you are budgeting for the extra 3% stamp duty land tax for additional properties.

Yes budgeted £10k for that as it will be under £250k.