Articles:
Arranging your holiday home mortgage: what you
need to know
SB May 2007
The idea of buying a holiday home is very
exciting. But there is always the question of
how you are going to finance it. Unless you
have substantial cash reserves from your main
property, you will need to look for a
holiday home mortgage
Nowadays that shouldn’t be all that difficult.
As demand for holiday homes increases, more and
more lenders are providing
holiday home mortgages. If you are planning
to let your holiday property out on a commercial
basis, it can be slightly more difficult. But
if it is simply for the use of yourself, family
and friends, there isn’t usually a problem.
A typical holiday home mortgage will provide a
maximum of 70-80 per cent of the value of the
property. Lenders usually insist on a minimum
property value, which is usually around £70,000
- £80,000. Of course the lender will need to be
satisfied that you can afford the repayments, on
top of your first mortgage if you have one.
Some lenders will lend on properties in England,
Wales and Scotland, but others exclude Scotland
for a holiday home mortgage.
You can usually opt for a capital repayment
mortgage or an interest-only mortgage. If you
are in a position to make higher repayments,
obviously a repayment
mortgage will be preferable. The sooner you
pay it off, the sooner the holiday home will be
yours. An interest-only mortgage will mean your
monthly repayments are more affordable, but you
will have to find some other means to repay the
capital. This shouldn’t be a problem if you are
expecting an inheritance, or if you plan to sell
your first home eventually. Otherwise, of
course, it will have to be repaid by selling the
holiday home.
You can often negotiate a more favourable rate
on your holiday home mortgage, especially if you
are in a position to pay a larger deposit. Some
lenders offer you the choice of a fixed rate or
a variable rate. A fixed rate can look tempting
if there’s a danger that rates may soar, but can
be very frustrating if rates drop lower. A
variable rate holiday let mortgage often
starts with a honeymoon period that can also
look very tempting, but then it will revert to
the current rate. You may also be able to get a
split rate mortgage that gives you the best of
both worlds.
Finding a mortgage can be a very stressful
experience. Obviously for your holiday home
mortgage you want to avoid stress as much as
possible. Talk to a financial adviser or an
independent mortgage broker that specialises
in holiday home mortgages about the kind of
arrangement that best meets your needs.
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