November 5, 2019
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What do I need to consider when buying a holiday home?
A holiday home can be many things: a serene bolthole, a lucrative let, a place for family and friends to congregate. If you pick wisely, it’s an investment you won’t regret.

Before you commit to buying a holiday home in the UK, your first consideration should be whether the property will be for business, pleasure or both. This will play a huge role in determining what kind of place you purchase, from its size to its location.

It’s likely that a second property will stand unoccupied for varying stretches of time, exposed to a variety of risks – something as simple as a leaking tap can wreak havoc. Insurance Choice can help in your search for quality holiday home insurance suited to your needs and budget.

We specialise in protecting investments, so we’re going to walk you through the key considerations all buyers should take before purchasing a holiday home.  
Let’s get started…
 

The legal stuff

If you’re planning on living in your second home all year round, first check if this is actually possible. Certain purpose-built holiday properties come with residency restrictions attached, so know what your rights will be. For instance, residency restrictions commonly limit occupation to 11 months per year.

Local councils can give planning permission allowing holiday homes to be built in areas where unlimited residency is not allowed, only deeming these properties appropriate for ‘recreational’ use. This could be linked to the area’s limited resources – for example, over-subscribed schools or GP surgeries.

If you’re already a homeowner, purchasing a second place means a 3% hike in stamp duty. You’ll also need to pay a certain amount of council tax, determined by the local council. Some councils give furnished holiday lets (FHL) and second homes a council tax discount of up to 50%.

Make sure you contact the local council before purchasing your desired property, and find out what you’d be entitled to.

Many people choose to periodically let their second homes, as a means of balancing out these extra costs.

If you opt for a FHL, you’ll be able to offset various costs against your income tax. These include: money spent on furnishings, interest incurred on a holiday home mortgage, maintenance costs, council tax, management fees and utilities.

You’ll also be able to offset holiday home insurance premiums – another reason to secure reliable cover!
A person signing a document to buy a new property

FHL criteria:

•             The property must be furnished.
•             It should be available for lettings a minimum of 210 days per year.
•             It must be let for a minimum of 105 days annually.
•             Long-term tenants cannot occupy the property for more than 155 days per year.
•             The property must be situated in the UK or in Europe.


Be careful not to let your property for continuous periods exceeding 31 days in any tax year, as this will disqualify it from FHL status.

You’ll need to be able to prove you’re renting your second home to tenants for short stays and receiving payment in exchange. A 12-month probationary period will precede any granting of FHL status, so bear this in mind.
 

Time and money

If you plan on taking out a mortgage on your second home, you’ll first need to decide whether you’ll be letting the property. If you’re keeping the property for private use only, you can apply for a generic second mortgage.

Holiday let mortgages are offered by a limited number of providers, so you’d need to shop around for a good deal. Buy-to-let mortgages will come with various terms and conditions attached, some of which you may be unable to meet.

You’ll only be letting the property for short bursts of time, so will lack the assured shorthold tenancy agreement many buy-to-let mortgages require.

Whether or not you let your second home, it’s unlikely you’ll have the time to keep an eye on the house all year round. While reliable holiday home insurance can cover your property against risks such as accidental damage or theft, you may want to add an extra layer of security and hire a property manager – this requires additional expenditure.

If you can’t afford a property manager, ensure you’ll have enough time to oversee your second house, correspond with guests and solve any issues that arise during bookings.

Consider other costs such as advertising and property maintenance. Factor in the impact a second property will have on your finances, as expenses quickly rack up.

Even if you’re letting the house, the income it provides can’t be guaranteed. Demand for your property could ebb and flow according to the seasons and weather, so it’s important to consider whether your profits will exceed any losses, especially if you have mortgage repayments to maintain.

Prepare a watertight financial plan, setting funds aside during peak times to tide you over when demand drops. You could consider looking to buy an existing holiday let, as this will give you a certain degree of assurance regarding demand.
A stone holiday cottage in a green garden surrounded by bushes and flowers on a sunny day

Location

Before you begin the search for your dream holiday home, try making a list of ideal locations. You may fall in love with a quaint country house, only to realise it’s in the middle of nowhere, situated in a spot that’s unlikely to attract many guests.

Thoroughly research the areas you’re interested in, weighing up the following factors:

Proximity to hotspots

If the property is in a rural location, find out how close it is to appealing sights, fun activities and culture-rich cities, ascertaining whether these can be reached on foot or by car. Proximity to indoor activities is particularly important during off-peak periods, as outdoor pursuits such as walking or going to the beach become less appealing.

A cliffside coastal cottage will be hot property throughout summer, though during the colder seasons, harsh weather conditions will likely deter guests from booking in. By comparison, a modern flat in a popular part of London is more likely to be booked year-round.

If you’ll be using the house, ask yourself whether you’ll want to make repeat visits to the area – you want to pick somewhere offering activities and sights that appeal to you. If you enjoy long, scenic walks, you might prefer a property in the Lake District; if you’ll be visiting with family in tow, you’ll want plenty of child-friendly activities nearby.

Accessibility

Remote properties that are tricky to access are unlikely to attract families, older visitors and guests with restricted mobility, meaning that opting for a more isolated location – the Scottish Highlands, for example – limits your customer base. Likewise, if local amenities are scarce or non-existent, this will put some guests off.
A holiday home in a mountainous landscape

Transport links

Your desired property may be near to popular towns and attractions, but it may have poor transport links.

It’s worth working out which services are reachable from the house and trying them out yourself. You can get the lay of the land, then provide guests with an accurate portrayal of the transport set-up.Competition
The density of competing holiday lets will vary from place to place, so do your market research. Purchasing a flat in Bath could be highly lucrative, but you’ll need to consider the level of competition in the area, and ask yourself whether you’ll be able to garner enough business to make a profit.

Distance from your primary home

If you plan on overseeing your second house yourself, work out how far you’re willing to travel to check up on things. Even after you’ve secured holiday home insurance, you’ll still want to visit regularly to make sure your property is secure. Travelling hours back and forth could quickly become tiresome.

Likewise, if you plan on using your holiday home frequently, an eight-hour round trip may detract from what should be a relaxing break. So, think carefully before committing to a far-flung property.

Future developments

A second home requires significant investment – that’s why it’s vital to do your homework before committing to anything.

A nightmare scenario? Purchasing a flat and discovering that a year-long restoration project will be occurring next door.

The noise would put off potential guests and hinder your own enjoyment of what should be a serene getaway.

Take a look at the local planning authority’s website, where you’ll be able to view proposed building plans in your chosen area – you’ll be glad you checked.
A table littered with various tools for construction

The property

The type of property you pick rests heavily on whether it will be used for business, pleasure, or both.

If the property is just for you, family and friends to enjoy, you’ll be focused on properties suited to your needs and preferences. If you’ll be letting the property, you’ll also be considering properties from a customer-orientated viewpoint.

Type of accommodation

First think about the primary purpose of the house, and whether it can accommodate your needs, checking it will qualify for holiday home insurance.

If you have young children or want to invite friends to stay, you’ll want multiple bedrooms so that everyone gets a good night’s sleep. You’ll also probably opt for a property situated away from busy roads, with a roomy garden for barbeques and games during summer.

Properties intended for lets to larger groups will also need plenty of room, offering multiple bathrooms and bedrooms. Group-friendly enticements such as a games room and a large garden will boost your property’s desirability.

If you’ll only be visiting in small numbers or renting to couples, a small cottage or apartment might be a better choice. 

Older properties will likely demand expensive upkeep, so if your budget is tight, a modern property might be a wiser choice. Think about whether you’re targeting the luxury market or offering more affordable accommodation – your property needs to appeal to your chosen audience.

You may consider purchasing a holiday home off plan, but bear in mind this does come with risks attached. An off-plan development may end up looking markedly different from its original design, while holiday home owners could find themselves subject to costly service charges and ground rent.

Facilities

Think twice before purchasing a property lacking designated parking – competition can be steep in the holiday lettings market, so why put yourself at a disadvantage?

Many guests will want to travel by car, as it gives them the flexibility to explore with ease. Likewise, if you’re coming with family or friends, having space to park makes life a lot easier.

If the house has an outdated and worn bathroom or kitchen, you may want to install a shiny new replacement. You’ll need to factor in any required renovations when assessing a property, as this will place added strain on your budget, and you may face planning restrictions.

Look out for stand-out features such as pools, jacuzzis and summer houses. Facilities such as these add an element of luxury – a treat for you and an enticement for paying guests.
A hot tub in a garden with a wooden privacy fence in-front

Desirability

To compete with other holiday lettings, your property needs to be desirable. A great location isn’t enough; if your property looks unkempt or has unappealing interior décor, bookings will be sparse and reviews will likely be negative.

Put yourself in a guest’s shoes and ask yourself how desirable this property would be – does it stand out from the crowd? What’s special about it?

Make sure you can spare the time and money to maintain property upkeep, so visitors arrive to a warm, clean and attractive house with good facilities. Consider the property in relation to other nearby lettings – if you don’t think it can compete, don’t buy it.

You want to invest in a property that retains its value, should you wish to sell it down the line, so it’s worth getting a full survey and researching how well properties in the area hold their value.

 Security

Take a look at local crime levels and assess the design of prospective properties, considering how vulnerable they might be to break-ins or vandalism. If you’ll be letting the property, you could install an outdoor safe as a means of securely storing the key for arriving guests.

While there are many other handy measures you can take to protect your investment, your top priority should be securing reliable cover. Insurance Choice can find you specialist holiday home insurance, protecting you against unforeseeable risks such as guest injuries, theft and property damage. 

Enjoy your holiday home headache-free – get a quote today.