There are many reasons why you may want to buy a vacation home; Either for your own use or to rent in order to earn additional income. Both are popular options, but the avenue you travel can determine what type of mortgage you will take out to buy the property.
In some cases, vacation home mortgages can be difficult to arrange, but by doing your research you can ensure that you are well equipped with the right knowledge to make an informed decision.
If you are looking for some advice on how to get a mortgage for a vacation home, Watts Mortgage & Wealth Management Ltd offer some useful ideas.
What are the different types of vacation home mortgages?
A mortgage for a vacation home can depend on how you will use the property and also in which country it is located. If you are buying a vacation home for your own use and you do not intend to rent it out on a regular basis, you should be able to take out a standard residential mortgage.
If you already have a mortgage on your primary property, your vacation home will be purchased with a second home mortgage.
When buying a vacation home to rent as a business, you will need to take out a dedicated vacation home mortgage. Unfortunately, you won’t be able to get a standard rental purchase mortgage, as these products generally require that the rental be a short-term secured lease. Instead, you will have to take out a vacation mortgage.
How does a second home mortgage work for a vacation home?
A second home mortgage allows you to purchase additional property, which can be very useful if you are interested in a vacation home. It is important to consider the financial implications of buying a second property, such as additional stamp duty fees.
One of the biggest challenges in obtaining a second mortgage is that lenders may have stricter affordability criteria and you will likely need a large deposit of around 10% or more. In some cases, you may need to show that one of the properties is used as your primary residence.
How does a vacation rental mortgage work?
A vacation rental mortgage is a niche product, but they are available through a few select lenders. Typically, you will be allowed to borrow up to 75% on a vacation rental mortgage, but you may be able to access better deals if you can reduce this figure to 60%.
Vacation mortgage lenders will likely take a close look at rental income opportunities and how this affects your affordability. This is because rental income can vary greatly from season to season. You may need rental income in excess of an agreed percentage of your monthly mortgage payments.
Buying a vacation home abroad
Obtaining a mortgage for a holiday home outside of the UK can be easier if you do it in a popular or well-known market like Spain. There are too mainstream options, including borrowing from a UK bank or borrowing from a bank in the country where the property is located.
The major commercial banks are generally easier to deal with, but they are likely to only lend on properties in countries where they have offices. After your mortgage is fixed, you will probably work with your foreign office.
Whichever route you choose to purchase your vacation home, independent financial advice can be helpful. You can also work with a specialized broker to help you access the right deals with a suitable lender.