Buying a holiday home

Whether you’re dreaming of a second home in the countryside, looking to make a profitable investment, or a mixture of the two, buying a holiday let is a luxury that can have both personal and financial benefits. Encompassing everything from liveability and legalities to location, here are some key points to consider if you’re questioning how to buy a holiday house.

Is it a good investment?

Buying a holiday home to let can be a brilliant investment that can generate a great profit, so long as you do your research before you begin the buying process. Once you own the holiday house, it is essential to furnish it carefully and then maintain it to a consistent, high standard.

When searching for the holiday house itself, it’s vital to understand your preferred target market. Are you looking for a spacious getaway that’s perfect for families, a romantic bolthole for couples, or a secluded woodland cottage that’s ideal for walkers? The answer will determine the prime locations for your holiday home, not to mention helping with your marketing strategy.

The holiday rental’s features have a significant impact on booking value. In particular, does the property have a USP such as a swimming pool or beach views? There are numerous features that boost a holiday home’s desirability, such as its style and finish, a cosy log fire or luxurious hot tub. Meanwhile offering a dog friendly policy can help to attract a wider market, and thus boost bookings.

To generate a strong income from your holiday let, it’s important to really think about the profile of your target customer and treat the holiday house as an investment property; cost of buying, pricing strategies, marketing and housekeeping are all factors to consider. Will you be in charge of said tasks, or will you be enlisting the help of a professional? Using a holiday agency to showcase your property is highly likely to benefit your business; the agency will help to promote your holiday home on its website and assist with bookings, therefore taking the stress away from you, as the home owner.

If you’re thinking about potential revenue, it’s advisable to question whether there are good transport links and local amenities, and whether the holiday home will be desirable whatever the season…

The size and flexibility of holiday properties can affect the potential return on investment. A larger property allows for higher rental prices, as well as appealing to a wider market as it can accommodate various groups of guests. As a result, the property is more likely to generate lettings throughout the year.

Potential home owners should also be aware of potential costs. For example, using an agency to manage the holiday home will incur commission fees and thus lower your overall profit. Other costs include cleaning, travel to and from the property, home insurance, property maintenance, and utility bills.

Thus, if the plan is to purchase a holiday let for both personal and commercial use, it’s important to calculate your potential outgoings and incomings; weigh up the former and the latter to ensure that it’s possible to make a profit.

Thinking ahead, it’s also advisable to consider house prices and the property’s resale value. Location is key; question whether the holiday house is in a prime location and if there are likely to be improvements to the area, such as new transport links or amenities being built. Before buying property, do some research into current trends and the property market, to find out which areas are becoming increasingly popular.

Where to buy a holiday home

A quintessential cottage in the British countryside, beachfront villa in Cornwall, or cosy cottage in the Scottish mountains? Choosing the location of your holiday home can be influenced by personal preference, but you should also take into account whether the area has appeal for holiday makers.

Opting to buy a holiday rental abroad has obvious advantages, especially when considering the climate! If Brits seek hot weather, alfresco dining and sunbathing on a golden beach, they’re far more likely to book a getaway abroad.

Aside from the unpredictable Great British weather, buying a holiday let in the UK has definite perks, especially due to the rising popularity of staycations. As the home owner, travelling to and from the property will be easier and cheaper; whether the travel is for leisurely trips or necessary visits, it’s a perk to be closer to your holiday home.

It’s important to do extensive research when home buying in the UK. There are restrictions in certain areas, such as St Ives in Cornwall, on buying a second home, that should be considered.

Whether you choose to buy abroad or in the country, it’s vital to think about the local competition. Whilst it’s advisable to choose a prime location that’s popular with tourists, you don’t want to be shrouded by holiday homes that are similar to yours. Find a place that stands out from the competition and will secure bookings.

Holiday home essentials

For holiday makers, modern amenities are essential and luxurious touches are welcomed. Guests will expect quality appliances, a speedy internet connection, hot water and good heating. Consequently it’s important to make regular checks that everything’s functioning properly; a broken thermostat or faulty boiler, for example, could cause big problems for guests.

Comfort is also key for holiday makers seeking a home away from home. Ensure that your holiday rental is dressed with deluxe, quality furnishings. From towels and toiletries, to bedding and crockery, it’s essential to provide guests with excellent items to use during their stay.

Good surroundings are another fundamental factor for a successful holiday home. Guests won’t want to be isolated without good transport links to nearby attractions, and there should be parking easily available. For the ultimate ease, find a property that’s close to a convenience store, while nearby pubs, restaurants and shops are an added bonus.

If the holiday home is intended for families, take care to cater for children. A nearby children’s playground is ideal, while an outdoor space at the property works well as a play area. During warmer months, an outside area (whether that be a garden, terrace or pretty patio) doubles as somewhere to enjoy alfresco drinks and dining.

Taking health and safety into account, your holiday house should be fitted with the appropriate devices. A first aid kit, carbon monoxide detector, fire blanket and extinguisher, and fire alarm are all essential.

Legal considerations

In addition to the financial considerations, there’s a number of legal obligations which holiday home owners must abide to.

Once you own the property, you will be responsible for health and safety of your guests and you must review and take steps to ensure your holiday rental meets current regulations. For example, you must carry out a general safety review of the house and its grounds, identifying dangerous drops or potential trip hazards. If the property has gas, you must have the boiler and gas appliances checked and signed off by a Gas Safe engineer. You should conduct or arrange for a fire risk assessment and equip your holiday home with items such as a fire blanket, smoke alarm and carbon monoxide detectors. You must insure your property with an appropriate level of public liability insurance, normally at least £2m.

Can you live in your holiday home?

Generally speaking, not for very long! The home that you normally live in is considered to be your main dwelling or residence, not a holiday home.

Of course you can stay in your home from time to time – it’s yours to enjoy, after all. However, you should be careful to track any usage alongside your professional letting usage to ensure you don’t fall foul of the Furnished Holiday Let rules.

To qualify as a holiday let, there are specific rules to abide by, as set by HMRC, namely: ‘Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year. Don’t count any days when you’re staying in the property. You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year. Don’t count any days when you let the property to friends or relatives at zero or reduced rates as this isn’t a commercial let.’

The full detail of the rules can be found on HMRC’s website.

Finance options

Real estate investing, when it comes to holiday homes, can be complicated. There’s a variety of different finance options, depending on the property’s use and whether you choose to mortgage the property itself, or mortgage your main residence.

Arranging a mortgage will generally be simpler if you’re buying a holiday home for your own use and only intend to rent it out occasionally; in this instance, a ‘second home mortgage’ could be a viable option. On the other hand if you’re planning to holiday let, you’ll probably require a ‘holiday home mortgage’. This is a specialist area of finance and is poorly understood in the wider market. Such mortgages are fairly straight forward, but you won’t find them at the majority of high street banks. Most lenders for holiday home mortgages are building societies.

In both cases, you should be aware that you’ll need a large deposit when getting a holiday home mortgage. Typically, expect to pay a deposit of 25% to 35%, while interest rates and fees will also tend to be higher. If you’re buying a holiday home abroad, there’s the option to go through a UK bank, as long as they have a global presence. Alternatively, use a lender in the country where you’re purchasing the property.

The number of lenders who offer mortgages for holiday properties is significantly lower than standard properties. What’s more, lenders will have strict criteria which need to be met, and will require proof of gross rental income to ensure that the mortgage payments can be met by the holiday let. Typically, they’ll expect you to make a rental income that is 145% of the mortgage payments, when calculated at 5.5% interest rates, which is known as a stress test.

It’s important to understand that a holiday let mortgage is different to a buy to let mortgage. If you already own a buy to let and wish to turn it into a holiday home, it’s likely that you’ll have to remortgage the property.


Income Tax

Profits generated by a holiday let are subject to income tax. However, unlike buy to let properties, there is no limit on the amount of mortgage interest you can offset against those profits, thereby reducing your income tax bill. If you have a mortgage on your cottage, this can be a very significant saving.

Holiday home owners are entitled to capital allowances for certain items that are required in the running of the property, such as furniture and large fittings. Also, all genuine expenses incurred in running and maintaining the holiday let can also be deducted from your gross income.

Capital Gains Tax

When you sell your holiday cottage, if you meet the Furnished Holiday Let criteria, then you might be able to benefit from certain capital gains tax reliefs, such as Entrepreneurs Relief, which would reduce the tax on sale to just 10% (based on 18/19 rules).

Council Tax

Keep in mind that council tax will be lower on a second property, with a discount of up to 50% possible. Meanwhile if your holiday let is available for 140 days or more per year, the property will be subject to business rates, which can work out cheaper than council tax.

Stamp duty land tax

Another consideration if you’re planning to buy a holiday let is stamp duty. If you’re purchasing an additional home, you’ll have to pay an extra 3% in stamp duty land tax, on top of the current rates. And while regular stamp duty is determined on a tiered basis, the 3% surcharge applies to the entire purchase of the property.