What to consider when buying a holiday home

Buying a holiday home could be a great way to earn additional income or to have somewhere to escape to for the summer but there are plenty of rules, regulations and restrictions to be aware of.

The "lure of a coastal holiday home or crash pad in the city" has encouraged one in 10 people to own a second home, said the HomeOwners Alliance.

But in some areas local residents are hitting back at second home owners. There has been a "growing concern" recently, said The Guardian, about properties being let out on a short-term basis, "leading to local people being priced out of their communities".

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Lenders are also taking action. Leeds Building Society is currently trialling a ban on holiday let mortgages in tourist hotspots to help those struggling to buy or rent in parts of Norfolk and Yorkshire, the newspaper added. 

While buying a second home can be "rewarding", said Phil Spencer in The Daily Telegraph, "it calls for careful forward planning".

Why do you want a holiday home?

There are "many reasons" why you may want to buy a second home, said Unbiased.

You may "want more space and fresh air at the weekends" or it could serve as a holiday home or be rented out "as a source of additional income".

However, you need to know "what you will use the property for so you can find the right one", said the HomeOwners Alliance. A second home for your own use could be quite different to an investment property you plan to turn into a holiday let.

The costs of purchasing a second home

Unless you are paying with cash, a second home may require a "different type of mortgage", said Forbes Advisor. You would only need a second residential mortgage if it is a home for you and family or friends to use. But some lenders may limit how long you can "let out to strangers", if at all.

Instead, you may need a holiday let mortgage if you want to let it out regularly, "particularly at peak holiday times", said Forbes Advisor, or a buy-to-let loan if letting it to tenants on a long-term basis.

Once you buy a second property or holiday home, your main home is considered your primary residence, said Unbiased, and any additional property "is known as a secondary residence".

Buyers pay an extra 3% stamp duty charge on additional properties so the bill on a £350,000 purchase would be £15,500 on a second home, instead of £5,000 if it was your own home to live in.

Additionally, you may need to pay income tax on any rent you receive and capital gains tax if you sell the property.

The income you earn could push you into a higher tax band, said Unbiased, but you can deduct expenses for letting out your property such as for maintenance and accountancy fees and you can get a 20% tax relief or "credit" on mortgage interest paid for a second home.

Rules and regulations to watch out for

Some tourist locations are "fighting back" against "wealthy outsiders" with second homes, said the Daily Mail, by ensuring properties are only sold to people as a primary residence to stop locals becoming priced out.

Local authorities are also getting extra powers. For example, councils in England can now charge additional council tax of up to 100% on furnished homes not used as a sole or main residence, which means second homeowners will have to pay "thousands of pounds more each year in second home council tax in many cases", said the HomeOwners Alliance.

The government has also said it plans to limit how long homeowners can let out properties on a short-term basis to 90 days a year before requiring planning permission.

There are plenty of logistics to renting out a property, especially for a holiday home. Paying guests will want any issues resolved "as soon as possible", said Spencer in The Telegraph. In addition, there is a lot of planning involved as "the last thing you want is to only have interest from guests at the times you want to be there yourself".