Things to consider when buying a holiday home

Things to consider when buying a holiday home

Are you thinking about buying a holiday home? As well as a place to wind down and relax, it can be a brilliant investment. Take a look at our handy checklist for some things you should consider before you make the plunge.

Costs of a holiday home

  • Have you calculated your buying costs? Alongside the property purchase, legal fees and searches, remember that Stamp Duty fees are higher for second properties. To calculate your potential stamp duty payment visit the Money Advice Service.
  • Have you found a mortgage lender? If not, for a holiday let mortgage you may need to go to a specialist lender, as many providers see the holiday let market as high risk due to the seasonality of income.
  • Have you considered council tax on holiday lets? Depending on the use of your property and how often it is let out, you may not need to pay council tax and instead can pay business rates. More information can be found on this website.
  • Do you need to complete a self-assessment tax return? The first £1,000 of rental income is tax free but after that, you will need to pay tax on any income received. Find out more about tax implications here.
  • What about running costs? You should factor in local letting agent fees when calculating your potential rental income, as you will probably want someone on the ground to manage the property and deal with any issues. You'll also need to consider hiring a cleaner to go in between guest stays.
  • How about furniture and furnishings? If you are buying an unfurnished property remember to factor in the costs of furnishing it. Guests will expect a holiday let to have all the amenities they have in their own home, so you will need to cost up everything from bedding to tin openers. You may find that towels and bed sheets need changing regularly, so it might be worth having a number of different sets of both, to prolong wear.

Buying a holiday home

What will the holiday home be used for? If it is to be used mainly by you, then think about how often you will be there and whether it will be a worthwhile investment.

Consider where the best place to buy a holiday home is for you. Location is everything. If you want to ensure a regular income stream, the property should be well presented and close to good transport links. You should consider if it is a place that people want to visit at all times of the year, or whether you can generate healthy returns renting it through a short season. If you want to be close to the sea, a lake or another area of water, be careful that proximity doesn't increase your risk of flooding. You may also want to choose somewhere that you live close to, in case guests have any problems.

A country cottage may seem idyllic but consider whether it is easy to maintain. Often older properties cost more to run and while a thatched roof may look picture perfect, it would be seen as an increased fire risk. If buying a property like this, check when both the major portion of the roof and the ridges were last rethatched or attended to. The main portion of a thatched roof should last 40-50 years and even the ridges should only need attention every 8 -10 years.

Some places in the UK restrict the sale of new build properties to second home owners, so you'll need to research the local laws thoroughly. If looking for holiday lets for sale in Cornwall, for example, remember that St Ives and Mevagissey have started restricting second home ownership.

Running your holiday home as a business

  • What is the local letting market like? You'll want to ensure that there's a good market for holidaymakers in the local area, but if there is lots of competition, think about what sets your property apart. Could you install a jacuzzi or build an incredible games room? What about allowing pets to stay?
  • Who will you market your home to? If you're aiming for families or large groups, make sure there is enough space and amenities to cater for them. You may, however, wish to be selective about who you let to as you will have to foot the bill to replace items for new guests.
  • Have you thought about seasonality? Speak to a local agent to find out what the market is like and when your income would dip during the year, so you can plan for any potential loss of income during that time.
  • Have you thought about the type of holiday home insurance policy you need? It can be daunting to work out the type of cover you will need so we have set out some options you may wish to consider. Most will take out holiday home buildings insurance and holiday home contents insurance to protect the building and contents but there are a number of other options which may help provide added piece of mind:

    • Public liability to ensure you from cancelled guests due to damage caused to the property from an insured event like a fire, flood or burst pipe
    • If you employ staff to help you run your holiday let, then employers liability is a legal requirement
    • Personal accident cover can help if you or your employees are unable to work due to an accident
    • Glass and sanitary ware cover will protect both internal and external glass, along with bathroom fixtures
    • If you are worried about flooring being damaged, then floor coverings may be an option for you, as it covers you against cost of replacing or repairing coverings lino and carpets
    • Perhaps most importantly, cover for loss of rental income lets you claim back the rental income loss from cancelled guests due to external factors like a storm or flood

This checklist should go some way in helping you think about some of the most important considerations when buying a potential holiday home. The list is not exhaustive so if you need further advice, make sure you speak to relevant experts before making a purchase.

Small Business Insurance

Added: 03 Jul 2019