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Buying and Letting a Holiday Home
Purchasing a holiday home is an exciting prospect. It offers you the opportunity to get to know another area intimately, immerse yourself in a new culture, and de-stress from working life. These are just a few of the reasons growing numbers of people are buying a second property. If you’re one of the lucky ones, you’ll first want to ensure there’s an insurance policy in place that protects your prized asset for years to come. That’s where Intasure can help.
Why buy a holiday home?
There are several reasons why so many people are investing in holiday homes. For one, it’s an escape from the bustle of city life, available whenever you feel like de-stressing. But there are other reasons too— for instance, it’s also a great way of earning extra income. You might want to rent out your second property to holidaymakers for short periods when you’re not there, potentially offsetting the purchase cost.
Where to buy a holiday home?
Choosing where to buy your holiday home is an important consideration. Whether you buy in the UK or abroad, there are advantages and disadvantages to consider. One disadvantage to buying abroad is Brexit, as you’re no longer liable for tax breaks now that the UK has left the EU1
Plus, the value of the pound sterling has been quite volatile against the euro since Brexit2. So, because UK citizens pay in sterling, buying a property abroad may be proportionately more expensive than if you decided to opt for a British holiday home.
This is one reason why many people choose to buy a second home in the UK rather than abroad. Other reasons to buy in the UK include easy access, which is critical if a disaster arises. Also, you could be less likely to incur extra costs in the UK, since you’re probably more familiar with the rules and regulations here.
On the flip side, disadvantages to buying a holiday home in the UK include cost. For example, a house in the south of France is typically cheaper than in many parts of the UK3.
Purchasing your holiday home
Whether you’re buying a holiday home for your family or planning to rent it out, there are several legal issues to consider. For instance, if you plan to let your property out to holidaymakers, you must ensure you have a suitable holiday letting agreement with your solicitor and mortgage provider. You should also make sure that you fulfil your obligations as a landlord. For example, you’ll need to meet fire safety regulations and maintain housing facilities like swimming pools.
Please be mindful that if you’re applying for a mortgage, you will need a specific holiday let mortgage. This finance isn’t the same as a buy-to-let mortgage. It may also be within your best interests to take out appropriate forms of legal cover.
Regular buildings and contents insurance are unlikely to cover properties left vacant for more than one month at a time. Instead, you may require specialist holiday home insurance that covers issues like loss of rent and tenant damage. Public liability insurance is also worth considering, as this helps prevent costs arising from problems with guests. Your solicitor can help you navigate these matters.
Other things to consider are planning permission, especially if you are using the property as a holiday let for the first time. Certain areas also restrict you from purchasing a property for commercial gains, such as for a holiday let. Similarly, within the UK, if your holiday home is available to let out for more than 140 days, it is categorised as a self-catering property and will be liable for business rates instead of council tax4.
One last point. Arranging a mortgage for property overseas is typically a complex process, as you can either borrow from a UK bank or one in the country where the property is based. The different regulations abroad, together with foreign currency, can cause complications when applying for a mortgage. You may also have to put down a larger deposit.
Costs of buying a holiday home
There are several tax considerations to weigh up. For example, within the UK, stamp duty surcharges introduced in 2016 apply to second homes and typically increase by around 3 percent every property value band.