According to UK estate agents, of those people that pay for a second home with cash, the most popular sources of financing are either inheritance, bonuses or through selling one large property and buying two smaller properties. For the majority of the population who buy a holiday home, finance would have to be organised through re-mortgaging a main property or by possibly taking out a second mortgage.
Whilst a few years ago the high street banks and building societies seemed to be uncomfortable with providing mortgages for second homes their attitude seems to have changed in recent years and it is now possible to get mortgage rates at levels that are very similar to those offered for a main property. It is likely that there would still be arrangement fees on the mortgage but if you go to your existing mortgage supplier sometimes they are flexible on this point.
Steps to buying a second home or holiday home
The first thing to think about is financing. If you are lucky enough to have cash for the full purchase price then this is not something for you to spend a lot of time on. For everybody else, consideration needs to be given to how much money you have available for a deposit, what their current financial commitments are and therefore what additional repayment commitments can be made. As we all know, property is not a “one-way bet” and you have to consider the risks associated with extending yourself in property and think about how your personal circumstances would look if the value of your second home dropped by 50% over the next five years? Before any commitments are made you should consult with a qualified financial adviser to explore your options.
The next thing to think about is where you might like your second home to be. In most cases this will probably the first step that people go through: falling in love with an area that you have visited on holiday, wanting somewhere to return to in the area in which you brought up, buying somewhere for your student child to live during their studies – the list is endless.
Practical considerations need to be taken into account such as distance from your main home and ease of travelling- factors like this can have a significant impact on whether your experience of second home ownership lives up to your expectations or develops into a chore. If buying over-seas you need to consider what you would do if the low cost airlines significantly increased their prices or cut routes that you need to rely on. Also, if you intend to spend a lot of time over-seas, will friends and family travel the required distances to see you on a regular basis?
The next step is the process of researching your chosen locations. Obviously driving around the area and signing up with local estate agents would be a good first step but in addition to this, buying a subscription to the local newspaper and having it sent to you along with using some of the online property sites will allow you to ensure that you are getting all the information that you need.
The final step is the appointing of advisers (solicitors, surveyors, engineers) to help you through the process of actually buying the property. Even if you are buying in the UK this is never a straightforward process, but if you’re buying overseas then a great deal of caution is required. The advice is generally to ensure you appoint competent legal advisers in the country in which your purchase is being made. The nightmare stories of people finding out years after they had bought their property overseas that the property did not have planning permission and must be demolished are all too common. Similarly, laws on taxation are very different in other countries and it is important to understand how these will affect you (and your heirs).