A Guide to Buying a Holiday Let

People all around the world look into buying a holiday let for a number of reasons, including giving themselves a profitable financial investment, having a second home to allow themselves to get away a few times a year, or even to try and start a new letting business.

The key benefits of buying a holiday let

If you eventually decide to dip your toes into the world of holiday letting and management, you will see that there are several potential benefits to buying a holiday let.

The unique benefits that you can receive from owning a holiday home will affect you in a variety of different ways. Some are more obvious in that they may help you financially, whereas others will come as a pleasant surprise.

Potential for a good financial investment

A second property has the potential to be a sound investment when it comes to letting it out to guests. If done right, it could help you generate a steady income over your lifetime.

Buying a holiday home in a premium location will give you a better chance of a high demand for bookings. Research the top areas for UK staycations and consider properties in those areas. Be aware that this may also bring more competition from other holiday let owners.

As with most properties across the UK, inflation means that your property could be worth more in the future. With this in mind, even buying a property as a small getaway could prove beneficial financially. Read more on why holiday lets could be a good investment.

Use our Holiday Let Income Calculator to get an idea of how much you can earn from your investment.

Don't just take our word for it though. Hear what one property owner has to say about maximising revenue with holiday letting.

Your Own Holiday Retreat

Owning a your own holiday retreat is great for many different reasons.

A holiday home gives you the ability to give yourself a change of scenery when you're needing to get away for a break. Not only does it give you the chance to get away, but you may want to share your retreat with your family.

If you feel as though you're not utilising your holiday home much, you could consider letting out your property. That way, you will be generating a healthy passive income.

A guide to buying your holiday home

Mortgage rules change when you are thinking of acquiring a holiday home to let. To mortgage a holiday home to let out to guests, you will need to apply for a ‘holiday home mortgage’.

Unlike typical mortgages, this unique mortgage will require a deposit of anywhere between 25%-35%. On top of this, mortgage rates are typically higher which can put a number of property owners off.

Mortgage Lenders - When you see holiday home mortgages, you will quickly learn that there are far fewer mortgage providers catering for this area.

Not only are there fewer holiday home mortgage providers, the criteria that you would have to meet in order to qualify for this mortgage type is much more strict than other mortgage types.

Stress Test - Most mortgage providers will desire a high income rate from rentals. This can be anywhere between 130% - 150% of the repayment value.

Global Provider - If you’re from the UK and you’re looking to take out a mortgage on a property outside of the UK, be sure to check that the provider has a global presence.

If you’re struggling to find a provider in the UK willing to provide a mortgage on a property elsewhere, get in touch with the providers that are native to where your property is located. Read more about mortgages for holiday lets.

Our free Holiday Rental Income Estimate Letter Service promises to make this process easier for you.

Location when buying a holiday home

One of the most important factors to consider when you buy a holiday home is where you are going to purchase your property. Guests will choose to rent your cottage or abode for a variety of different reasons.

See our guide on the best UK places to buy a holiday let, where tourist hot spots such as Devon, the Lake District and Scotland are highlighted as potentially lucrative investment locations.

Short-stay accommodations are also in high demand, particularly in urban hubs like Liverpool and Bath, where popularity is on the rise.

Seasonal

Certain properties tend to do better during the different seasons throughout the year.

Log cabins and similar style cottages can perform extremely well in winter periods where people crave the idealistic winter cabin experience.

You tend to find cabins with a hot tub can perform particularly well during winter.

In the same way that some people seek winter breaks, some properties boom in the summer. Properties that host outdoor features such as an outdoor bar or pizza oven tend to perform better over the warmer months over the year.

Wilderness and nature

Some properties attract people for the wilderness that surrounds it. Again, this can be for a variety of different reasons.

Water sports including kayaking, canoeing and paddle boarding are becoming more popular across the UK. Is the property you are interested in situated near a popular river, lake or bay? This could be a unique selling point for your property that could attract the more adventurous guests.

Is the property situated near any iconic landmarks or hiking trails? Think about how the property could appeal to guests looking to quench their thirst for adventure across the UK’s most picturesque sights.

Local events

Does your property’s local town hold annual events that draw people in from around the country or even the world?

Events such as the Fringe Festival in Edinburgh attract thousands of people from around the world each year. Your home could be hot property during this time.

The UK is home to some of the most bizarrely unique and quirky events on the planet. In Gloucestershire, the event that captivates cheese lovers on a yearly basis is the annual cheese rolling competition on Coopers Hill.

Legalities

Did you know that there are a few holiday let rules and regulations that you need to follow when you let out a holiday home?

When letting out your property, you will become responsible for your guests’ health and safety on top of meeting UK standard regulations for letting out a property. This includes:

• Making sure that your property is family friendly and safe for children.

• Eliminating any trip or slip hazards within your property.

• Ensuring that there is secure hand railing on all stairways.

• Providing any signed warnings regarding hazards such as low ceilings.

• Leaving a list of emergency contact numbers for your guests.

• Reducing the amount of risk of fire hazards in the property.

On top of regular health and safety, you have to provide adequate furnishing in your property for it to qualify as a furnished holiday let (FHL). Read our full guide on rules and regulations.

Taxes

Just like a regular home, you will be required to pay tax on your property. However, although your property is a home just like other, you will be required to pay different kinds of taxes in comparison to your main property.

Council Tax - Generally, council tax on holiday lets cost slightly more than a regular property. It's also important to be aware that council tax on second homes may differ for different regions and countries.

Wales has recently decided to increase council tax on second homes. Be sure to ask your local advisor about what you could expect to pay in council tax.

Furnished holiday let tax - Did you know that if your property is fully furnished, you could be entitled to a tax relief?

FHL tax (furnished holiday let tax) is a form of Capital Gains Tax relief that alleviate certain tax payments.

Stamp Duty Land Tax - When buying another property to holiday let, you will need to consider the costs of Stamp Duty Land Tax. This form of tax requires the property owner to pay an additional 3% of tax on top of their current rates.

Unlike regular stamp duty taxes, this form of tax applies to the entire purchase price of the property.

Income Tax - Any revenue generated from your holiday let will be subject to income tax. However, there is some good news!

Unlike typical buy to let properties, holiday letting does not have a limit on the amount of mortgage you can offset with the profits you make from your holiday let. This is incredibly useful for property owners that have a mortgage on their property.

Read our furnished holiday let tax guide.

What are the extra costs when you buy a holiday let?

There are several hidden costs to think about when considering buying a holiday home, some of these include:

Maintenance:

When it comes to maintaining your property, there are a number of things you need to consider. You will need to ensure that a changeover takes place between every visit as well as cleaning and replenishing any welcome packs or consumables at the property.

Maintenance will also require any repairs that need to be made to the property including any plumbing, electrics or accidental damage.

If you're interested about all things maintenance, there are a number of different ways you can go about keeping your property in tip-top condition. Find out more on our blog on holiday home management with an agency.

Home security:

With your property being vacant from time-to-time, home security is something that has to be considered.

The costs of keeping your holiday home secure could be as small as installing external cameras or buying a safe.

For property owners that are more concerned about their holiday home safety can choose to install motion sensors or timed light switches and smart locks, all of which could add up to a fair amount but are ultimately worth it.

Commission:

Paying commission is another cost of letting a holiday let that you may not be thinking about when you’re setting out your plan.

It may seem like a negative to give a percentage of each of your bookings. But this fee has many advantages, allowing you to focus on giving your guests a memorable holiday while the agency deals with the admin.

Such benefits include:

• Exposure to a wider audience

• Professional handling of your bookings

• Generating more bookings throughout the year

• Guest management

Read our full guide to the cost of running a holiday let

Disclaimer

The information contained in this article was accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time, so please contact our prospective new owner team if you’d like to hear how. Nothing in this article constitutes the giving of financial, tax or legal advice to you; please consult your own professional advisor (accountant, lawyer etc). in this regard. If we have referred within the article to a third-party provider of unregulated holiday let mortgages, this is due to the fact that such mortgages aren’t currently regulated by the FCA. As a helpful reminder, your home may be repossessed if you do not keep up repayments on a mortgage, so again anything you decide to do in this particular area this is one on which you should take your own professional advice on too, as we aren’t providing and can’t provide you with this. The information provided may differ from region to region.