Second home/holiday flat

[TeddyBee]

Finally got around to changing my password after the great Mumsnet hacking! I've been lurking like mad ever since mind you and half a mind to go post all over all the threads I had really good advice for but couldn't post on...

Anyway, I'm really interested in hearing about people's experiences with buying a second home. We've recently had an increase in income and my mind has been turning towards DH's lack of a pension. At the same time I've been visiting Folkestone quite a bit as various friends have moved out from London and I have been considering buying a 2 bed flat there. Mostly for us/friends/family to use, but I would also hope to airbnb it for some of the time. We could easily cover mortgage payments ourself, so wouldn't need the income to pay it, but some extra income to put into a renovation fund/sink fund for the flat would be reassuring. We're already overpaying quite a bit on our current mortgage to reduce the term, but we're pretty bad at saving money, and I feel like an investment in property would be a better provision for DH's retirement than paying into a pension fund (not least because he's over forty).

If anyone has done similar I'd love to hear about it, any pitfalls, how you handled the mortgage arrangements, deposit, any advice etc etc I'm viewing a place on Saturday which has been on the market for a fair old while (so I expect there's something horribly wrong with it), but I'm really keen so probably need to be brought down to earth a bit!

[RebelandaStunner]

I agree that in general property is the best investment, especially if you are no good at saving or end up spending most of it. However I qould be wary of putting all my eggs in one basket which is why we both have pensions too. Could you do both?
We have properties we rent out including a holiday let. It's in a prime location for holidays and we get lots of bookings. However it is mortgage free. I believe that that it's difficult to get a mortgage on a holiday home but you could remortgage your main home. Tax benefits are good but only if you mainly rent it out at the commercial rate to customers rather than friends/family. We still meet the required numbers and use it ourselves lots. We use a well known national agency and even before purchasing they gave us loads of information and we knew roughly how many lets we would get. If I had the cash I would definitely get another.

[TeddyBee]

Thanks for the reply. We could theoretically remortgage our place, in that we have 60% equity in it, but we also have four years left on a five year fix, and I think it would be tricky to get out of it (and it's an excellent rate!). My concern is that it will be tricky to get a mortgage, the affordability criteria are so strict now. I have a pretty nice public sector pension, so we aren't going to be without a safety net.

I wasn't thinking of getting a holiday let mortgage specifically, but I might look into a bit more. I don't think Folkestone is a prime holiday spot, but it has a really nice vibe to it at the moment, and I think property prices will rise over the next few years.

[LavenderEverywhere]

If you need to borrow to buy this place and you are relying on holiday lets to pay all or most of your costs back then you really need to do your homework very carefully indeed. I would say it's better to go all out to spend more in a very tried and tested popular area and make the place as nice as you can as there is an awful lot of competition. I don't think Folkstone is popular enough as a holiday destination to be honest.

I'm not sure whether Folkstone is considered trendy and up-and-coming, is it? I might be wrong though. If it's the Whitstable or Southwold vibe you are after but can't stretch to then look at Deal or the old town part of Hastings.

Broadstairs is nice too, but not sure you'd get much business out of peak summer season and half terms in May.

[bojorojo]

Look at somewhere like Woodbridge in Suffolk ir holiday areas in Kent. We make about £9-14 from our holiday let in Cornwall after fees and we have no mortgage. It really can be difficult and you must be in a tried and tested area. I don't think Folkestone ticks this box. You need many weeks of Lettings to cover costs and you will need capital growth to replicate a pension. Also, when you pay into a pension, you get tax relief. You don't when investing in property and buy to let mortgages are expensive. Do your homework very thoroughly because you can easily make a loss. If you don't live nearby you will have agent and cleaning fees too.

[bojorojo]

Also if you do make a profit when you sell, you may have to pay Capital Gains Tax as it is not your main home.

[TeddyBee]

Yes, Capital Gains Tax is a worry, but we can cover the mortgage without holiday lets. I wouldn't be considering it otherwise. My thinking was that a weekend here and there (and there does seem to be some demand for weekends in Folkestone going by AirBnB) would be a useful extra income for the flat, not for us. If DH pays the same amount into a pension, even with pension relief he won't get it back when he retires.

I'll have a look at the places you mention, but I'm not sure I'd be comfortable buying somewhere we couldn't cover the costs ourselves if we got no lets, which basically restricts us to pretty cheap areas. Another alternative is to pay the excess into our current mortgage and then take it out again in four years to buy somewhere, but that does mean we don't have the benefit of the relatively cheap prices now, increase in value and a nice flat by the sea for that period. But then we're not running the risk of falling on harder times either. Ach, it's tricky.

[Lonecatwithkitten]

You need to consider the practicalities who is going to change the sheets sand do the cleaning. How much is that going to cost? It's not just CGT you will have income tax on any income above your threshold depending on whether you can run it through as rent a room scheme.
What happens when there is a gas leak when the tenant is in there or they flood the bathroom.

[thisisbloodyridiculous]

Look into whether you can use an investment vehicle to buy the property - not sure if it's still a thing but when I used to be a solicitor it was common to see people buying properties as pension investments using SIPPs

[bojorojo]

Not allowed to any more!! Property is not part of a pension portfolio for tax relief.

[thisisbloodyridiculous]

Oh sorry ignore me then OP

[Needmoresleep]

I think borojo is wrong. The tax position (both income and capital) for holiday lets is very different as they are seen as a business, but you do need to make sure you meet the rules.

www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/hs253-furnished-holiday-lettings-2015

In practice you need to be letting it out at peak times so cannot use it for yourself.

The bigger problem though is that most blocks don't allow short lets. In particular in holiday areas leases often expressly forbid holiday lets. AirBnB is a grey area however holiday lets will be unpopular with your neighbours and tend to reduce the value of all the properties in the block.

Plus people expect holiday flats to be cleaned effectively to hotel standards, and maintenance to be dealt with quickly. Rents are much lower off-peak but change over costs are the same. Through the year I reckon to lose about 40% of gross revenue to the agency. And though this includes things like clean and linen hire, it does not include fully equiping the flat, utilities, wifi, council tax. I don't mind. I mainly use our flat outside the peak season (its near my elderly mother) and see the rental revenue as a contribution to our costs.

[TeddyBee]

Ah, useful things to ask the estate agent then. The block doesn't look super naice, but location is very convenient for the sort of people I'd be aiming it at, and I'd redecorate to appeal to them. So I should check what kind of restrictions are on the lease in that case, I suspect there aren't many from the looks of it!

We probably wouldn't use it that much in the summer as DH spends all of August in bloody Edinburgh every year.

[concertplayer]

As a result of Stamp duty Changes April 2016 there is an additional
amount payable on any Buy to Let properties. The gvt wants to cool the
housing market. So tax relief on the interest paid to maintain a mortgage
on a 2nd home is being phased out as well.
You need to do your sums, sorry. Some people with employment income under the I think it is C£31k per annum threshold will find that when they add their rental income it pushes them
into the higher tax bracket so you do not want to get too much from it if you see what I mean.
thereis taxrelief on repairs so keep every receipt . This relief covers
letting agents fees.
Bear in mind and this is a biggie. Insurance companies do not like empty
properties and after a month most domestic insurers will impose conditions eg visiting the property every week The advice here is to insure via a specialist Landlord company who may allow 90 days empty.
Finally Council tax can double on empty properties so you MUST check.

[TeddyBee]

My other thought is that my mother is basically going to have very little income when she retires and I'd quite like to be able to offer her somewhere to live rent free. She would be close to us and three of my other siblings in Kent. Alternatively I could buy her a flat in her home town, but every particle of my being revolts against buying anything in that armpit.

[LavenderEverywhere]

I have a similar situation with my mother. I own a property near to her current home, near (ish) the coast which I bought as an investment property but I live most of the time some distance away from her. I like to be close when i visit but not too close iyswim.

My second house is empty for about three months at a time between visits but it is fully furnished and DH and I pay full council tax on it. My mum is thinking about downsizing soon and I think she will probably move into my place, at least in the short to medium term, take over the running costs, council tax etc and use her equity to boost her pension and disposable income while I will still get any capital gains benefits on the place I own as it is not a buy to let and I won't charge her rent.

[LavenderEverywhere]

The only downside is that when I visit her I will effectively be like her guest but in my own house. Which was sort of the thing I wanted to avoid when I bought it in the first place, but hey-ho.

[TeddyBee]

Ok council tax and insurance are on the list! I had worked out what the council tax was, but hadn't realised it might increase on a second property. And insurance. I'm not expecting to make a profit on it day to day, but I don't want to underestimate the costs.

[Ireallydontseewhy]

Lavender wouldn't any second property be liable to cgt regardless of whether it's buy to let, rented etc?

[LavenderEverywhere]

Ireally yes it would I think, but I will still get some capital gain out of it, even after I've been taxed on it. Although I don't think I'll ever sell it, but will eventually rent it out to supplement my pension and then leave it to my children. Or as it's quite small if I need to downsize I might live in it myself when I'm retired and old.

[Needmoresleep]

There are different tax rules for Furnished Holiday Lets as opposed to Buy to Let. Including different treatment under IHT. But you need to be careful to make sure you qualify.

There are also specialist insurers.

[Ireallydontseewhy]

Thanks lavender, i thought i had missed something! It sounds like a very flexible, multi tasking, flat which is good!
Op, the other thing, which sounds obvious i know, is that property prices may even fall or at least stay pretty static for a few years - i know there have been unfulfilled predictions for some time, but you never know when they're going to materialise! And the btl tax changes may be starting to have an impact on prices. But it sounds as though you plan to keep it long term so that shouldn't be so much of an issue.

[TeddyBee]

I need to get more of a feel for the area and house prices. To me, partly I suspect because I know several people who've moved there recently, it feels like Folkestone is becoming one of those exit from London destinations, and I'm keen to get in at this point in the market. On the other hand, I'm not a property expert and I do get easily over excited by grand schemes!

Mind you, the last ridiculous idea was our giant extension and although it was a difficult couple of years until we could remortgage on the increased valuation, and not helped by the unexpected appearance of a third child half way through, we've done very well out of it.

[googlepoodle]

Mortgage payments will still be allowed to be taken from income for holiday lets under the new rules

[Ireallydontseewhy]

That's interesting googlepoodle, i hadn't realised that. I wonder if that will mean an influx of investors now buying property for holiday lets rather than for 'normal' lettings ie tenancies. In which case 'holiday' areas may see higher price rises than places where letting is mainly tenancies!

[origamiwarrior]

What are your plans Teddy re. maintenance, cleaning, changeovers etc? I'm interested in doing similar, but wonder about the logistics if you're not right on the doorstep.

FWIW, I think Folkstone is coming-up - prob not in next 5 years but it's got the cheekbones to be the next Whitstable. And in the meanwhile, you can get some airbnb income through contractors, and people visiting family there.