Buying a second home - advice please :)

matt1987

BikingBud said:

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?

Wow, I assume you didn’t read my whole post? I am a very regular visitor to the area and have family there too. I spend a lot of money on accommodation every year, so why shouldn’t I make it work for me?

I’m not going to turn this thread into whether people should buy up properties as holiday homes to make a profit at these coastal resorts or not… I simply asked for advice on how best to do it, and if anyone has done it from my positions before.

Must admit, it’s a very good effort at de-railing though.

HTB_newbie

Hi We have a holiday let, we bought an existing holiday let so had a few years of accounts for the holiday let mortgage process. Otherwise you are likely going to need a holiday let agency to give projections of anticipated income as part of the mortgage process. Using a holiday let mortgage broker helps. How will you be managing the let and how will you be marketing it? If you intend to use a holiday let agency for marketing and to manage your home on your behalf you can contact them prior to getting your holiday let and they will provide you with good advice on the process.

Having  gone through this process a year ago there were a fair amount of upfront costs that you’ll want to factor in in addition to the extra stamp duty mentioned above. Taking over an existing holiday let, we negotiated for the furnishings separately so had most things, yet we still spent a surprising amount. If you are providing a furnished holiday let, cost up all items you’d need, bedding, kitchen items etc.. as well as the big ticket items like furniture. You also have holiday let insurance, accountant advice on setting up your business, risk assessments, electric appliance testing, etc. Then factor in cleaning costs, repairs and frequent decoration, laundry service costs, marketing/management costs (i.e. percentage per booking to holiday let agency/booking.com), hamper for guests etc. 

Don’t forget an emergency fund in case something is needed before you’ve built up enough profit in the business. Also factor in you may be paying some of your regular outgoings on utilities, changeover costs for a month or so before monies are released from guests staying. 

Hope this helps. Best of luck!

GDB2222

HTB_newbie said:

Hi We have a holiday let, we bought an existing holiday let so had a few years of accounts for the holiday let mortgage process. Otherwise you are likely going to need a holiday let agency to give projections of anticipated income as part of the mortgage process. Using a holiday let mortgage broker helps. How will you be managing the let and how will you be marketing it? If you intend to use a holiday let agency for marketing and to manage your home on your behalf you can contact them prior to getting your holiday let and they will provide you with good advice on the process.

Having  gone through this process a year ago there were a fair amount of upfront costs that you’ll want to factor in in addition to the extra stamp duty mentioned above. Taking over an existing holiday let, we negotiated for the furnishings separately so had most things, yet we still spent a surprising amount. If you are providing a furnished holiday let, cost up all items you’d need, bedding, kitchen items etc.. as well as the big ticket items like furniture. You also have holiday let insurance, accountant advice on setting up your business, risk assessments, electric appliance testing, etc. Then factor in cleaning costs, repairs and frequent decoration, laundry service costs, marketing/management costs (i.e. percentage per booking to holiday let agency/booking.com), hamper for guests etc. 

Don’t forget an emergency fund in case something is needed before you’ve built up enough profit in the business. Also factor in you may be paying some of your regular outgoings on utilities, changeover costs for a month or so before monies are released from guests staying. 

Hope this helps. Best of luck!

I looked into holiday letting a house in N Norfolk. The purchase cost would be £250k.

Letting potential was surprisingly lean. There's a more or less comparable property available locally at £400pw low season and £600pw high season. There's 8 months of low season and 4 months of high season. The lettings management company charge 28% for a full management service. So, that's £290 pw net, low season, or £430, high season.

You might let it 30 weeks a year.  So, maybe £10k a year income after letting fees.

Then, you have to pay for everything. Each post letting clean is £60. Plus bed linen washing at £10 per set. So, that's say £100 per letting. Say £3k a year for cleaning.

Plus, you'll have all the other expenses, as HTB newbie mentioned. There are bound to be loads of repairs and maintenance work. The garden needs to be maintained. Utilities. Rates. Furnishings wearing out and needing to be replaced.

This has left me seriously wondering how much of a money spinner it is, and whether simply renting it out to a local family as a BTL wouldn't make more sense?  Or, simply not bothering.

hazyjo

Prob worth speaking with the developer to see if there any restrictions on letting these new properties. Might not be allowed - think it's fairly common in really touristy areas.

canaldumidi

matt1987 said:

BikingBud said:

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?

I’m not going to turn this thread into whether people should buy up properties as holiday homes to make a profit at these coastal resorts or not…

It was BikinBud who's turning the thread into that discussion, not yourself.

I certainly sympathise with his concerns - in some areas (Wales? the South West? East Anglia?) the national housing shortage is seriously exacerbated by 2nd home owners and it's a genuine concern.

The 3% additional SDLT is an aknowledgement by government of the problem (OK, it's also revenue raising!), but it's not really sufficient to deter 2nd home owners, Plus has a similar negative effect on BTL landlords who arguably provide homes in the rental market.

K_S

matt1987 said:

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! 

@matt1987 Glad to hear you've had a positive response.

Do note that with most mainstream lenders, the broker *should* be able to arrange the further-advance as well, so they can do both in sync and will not need any extra documentation/information etc. other than the details of your current mortgage account.

All the best!

Flugelhorn

I bought one about 20 years ago - increased mortgage on my main property to do it, it does cost quite a lot to set it up and TBH we didn't make much from letting it out (Lake District)  but did make a really good profit when we sold it. 

I wouldn't let out another place again, it wasn't worth it in the long run and a lot of hassle - I have a different  holiday place now but it is just for our use

paddytt

You should think about getting the highest LTV on your main home that’s available to you, the rate is still likely to lower than the Holiday Let - or at least get it high enough so the interest rates are the same, to save you as much interest overall as you can.  

You should then protect your main home, by making the repayments on it as high as you can afford using a shorter term or overpayments etc.  And do the opposite with the holiday let - interest only mortgage if you can get one.  Only pay the holiday let off when you’ve paid off your main home, that way you protect yourself as far as possible.  (If you are really secure financially and can pay off the mortgage on your main home anytime from savings, then think about doing the opposite and reduce the overall interest cost)

Only pay in total what you can afford of course!

matt1987

HTB_newbie said:

Hi We have a holiday let, we bought an existing holiday let so had a few years of accounts for the holiday let mortgage process. Otherwise you are likely going to need a holiday let agency to give projections of anticipated income as part of the mortgage process. Using a holiday let mortgage broker helps. How will you be managing the let and how will you be marketing it? If you intend to use a holiday let agency for marketing and to manage your home on your behalf you can contact them prior to getting your holiday let and they will provide you with good advice on the process.

Having  gone through this process a year ago there were a fair amount of upfront costs that you’ll want to factor in in addition to the extra stamp duty mentioned above. Taking over an existing holiday let, we negotiated for the furnishings separately so had most things, yet we still spent a surprising amount. If you are providing a furnished holiday let, cost up all items you’d need, bedding, kitchen items etc.. as well as the big ticket items like furniture. You also have holiday let insurance, accountant advice on setting up your business, risk assessments, electric appliance testing, etc. Then factor in cleaning costs, repairs and frequent decoration, laundry service costs, marketing/management costs (i.e. percentage per booking to holiday let agency/booking.com), hamper for guests etc. 

Don’t forget an emergency fund in case something is needed before you’ve built up enough profit in the business. Also factor in you may be paying some of your regular outgoings on utilities, changeover costs for a month or so before monies are released from guests staying. 

Hope this helps. Best of luck!

Thanks for this - great advice.

Its a new build so it will be unfurnished, however appliances and flooring are included. I have estimated around £7000 to kit out a small 2 bed house with furniture - and I have some of my own too so that's probably over estimating.

I have taken into account all the monthly expenses above - and took advice from a holiday let agency who stated that cleaning including linen is around £100 plus VAT per changeover and their fees are 20% commission. How much can I expect to pay in insurance monthly? I have estimated it at £60 per month?

The only thing I havent taken into account is the risk assessments / electrical testing / accountant fees although I would have absolutely no idea how much that would be - I would hope that the letting agents would atleast guide me in relation to the risk assessment and electrical testing. 

Yes, thats a good point regarding release of monies. When it is set up I understand that I wont be getting any rental income immediately and therefore will have to take into account a good few months of no income - so will need some set aside to pay bills and mortgage.

GDB2222 said:

HTB_newbie said:

Hi We have a holiday let, we bought an existing holiday let so had a few years of accounts for the holiday let mortgage process. Otherwise you are likely going to need a holiday let agency to give projections of anticipated income as part of the mortgage process. Using a holiday let mortgage broker helps. How will you be managing the let and how will you be marketing it? If you intend to use a holiday let agency for marketing and to manage your home on your behalf you can contact them prior to getting your holiday let and they will provide you with good advice on the process.

Having  gone through this process a year ago there were a fair amount of upfront costs that you’ll want to factor in in addition to the extra stamp duty mentioned above. Taking over an existing holiday let, we negotiated for the furnishings separately so had most things, yet we still spent a surprising amount. If you are providing a furnished holiday let, cost up all items you’d need, bedding, kitchen items etc.. as well as the big ticket items like furniture. You also have holiday let insurance, accountant advice on setting up your business, risk assessments, electric appliance testing, etc. Then factor in cleaning costs, repairs and frequent decoration, laundry service costs, marketing/management costs (i.e. percentage per booking to holiday let agency/booking.com), hamper for guests etc. 

Don’t forget an emergency fund in case something is needed before you’ve built up enough profit in the business. Also factor in you may be paying some of your regular outgoings on utilities, changeover costs for a month or so before monies are released from guests staying. 

Hope this helps. Best of luck!

I looked into holiday letting a house in N Norfolk. The purchase cost would be £250k.

Letting potential was surprisingly lean. There's a more or less comparable property available locally at £400pw low season and £600pw high season. There's 8 months of low season and 4 months of high season. The lettings management company charge 28% for a full management service. So, that's £290 pw net, low season, or £430, high season.

You might let it 30 weeks a year.  So, maybe £10k a year income after letting fees.

Then, you have to pay for everything. Each post letting clean is £60. Plus bed linen washing at £10 per set. So, that's say £100 per letting. Say £3k a year for cleaning.

Plus, you'll have all the other expenses, as HTB newbie mentioned. There are bound to be loads of repairs and maintenance work. The garden needs to be maintained. Utilities. Rates. Furnishings wearing out and needing to be replaced.

This has left me seriously wondering how much of a money spinner it is, and whether simply renting it out to a local family as a BTL wouldn't make more sense?  Or, simply not bothering.

Yes, this is why I contacted a letting agent. A similar property they have on their system generated £27500 last year based on 30 changeovers. High season around £1300 a week and low around £500 a week. The cleaning very similar to what you have said which includes linen. They said expect low income of around £25,000 a year and high to £30,000 for next year.

Based on those figures the property would easily pay for itself meaning I get free visits to family which is the reason I want to do it! Im not too bothered about making profit in all honesty - thats just a bonus if it happens. As long as I can break even - im not too fussed.hazyjo said:

Prob worth speaking with the developer to see if there any restrictions on letting these new properties. Might not be allowed - think it's fairly common in really touristy areas.

Yeh I have asked this question - no restrictions what so ever.

K_S said:

matt1987 said:

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! 

@matt1987 Glad to hear you've had a positive response.

Do note that with most mainstream lenders, the broker *should* be able to arrange the further-advance as well, so they can do both in sync and will not need any extra documentation/information etc. other than the details of your current mortgage account.

All the best!

Thanks! The property isnt going to be ready until 2023 most likely, so I did think about taking out the equity sooner rather than later to take advantage of low interest rates, and just start paying it off. Is that a wise move? I spoke to my current lender yesterday who said they would release funds as long as we had proof from the developer that we had put a deposit down on a property.

paddytt said:

You should think about getting the highest LTV on your main home that’s available to you, the rate is still likely to lower than the Holiday Let - or at least get it high enough so the interest rates are the same, to save you as much interest overall as you can.  

You should then protect your main home, by making the repayments on it as high as you can afford using a shorter term or overpayments etc.  And do the opposite with the holiday let - interest only mortgage if you can get one.  Only pay the holiday let off when you’ve paid off your main home, that way you protect yourself as far as possible.  (If you are really secure financially and can pay off the mortgage on your main home anytime from savings, then think about doing the opposite and reduce the overall interest cost)

Only pay in total what you can afford of course!

Now that is an interesting thought. I think by taking £65k out of my current mortgage i'd be left with a 67% LTV. I think the lowest rates for my current lender is 70% LTV so its probably something I could take a look at. 

GDB2222

It’s odd that there’s such a difference in the letting rates, compared to N Norfolk. In some parts of the country, the rates went through the roof during the pandemic. I’m not sure they won’t come back down again. I made enquiries about the rates that applied a couple of years ago, and I suggest you do likewise. 

I agree that, if you can rely on £25k plus in income, it’s a no brainer. The problem is if that drops right off it’s no skin off the agent's nose.