I’m sorry to hear about your parents, it’s not an easy time.
This may not be a universal experience of inheriting property, but it is mine.
Getting a mortgage on an inherited property that you are not going to live in (I don’t know if its easier for your main residence) is a nightmare. Mine are 5% and that was the ONLY offer I could get two years ago, when rates were super-low, my credit rating was perfect, and I already had to buy-to-let in my name. It’s because the process of transferring the property into your name is ‘special’ - it’s not the same as a purchase or remortgage. Holiday lets are their own special kind of problem to get mortgages on, too.
If it is in Salcombe and you are in London, you will need an agent to let and manage it. Mine charges 14%, and it can be higher for holiday lets. It will not be let year round, and it probably won’t be let all ‘season’ either. There will be void periods. Also, there will be manically busy periods, people will break stuff, complain that stuff is broken and you didn't fix it fast enough (it may genuinely be un-lettable) and generally be a pain in the arse. Of course, not MOST people, but enough.
Rules and regulations for landlords are getting more and more onerous and tighter. Rightly so, in some cases, but if you don’t keep up with them you are breaking the law. It’s a minefield, and it’s often not the ‘passive income’ people usually imagine.
I think the tax implications are different for holiday lets, but recent changes mean you can’t claim your buy to let interest as a cost, and pay tax on your profits. You only get 20 percent tax relief. If you are not a higher rate tax payer, this makes no difference to your bottom line. If you are, it will. Especially if interest rates rise.
Interest rates will rise. I suspect property prices and the market generally are in a for a long slow down. Probably not a bubble burst crash (I sincerely hope) but this is definitely as good as its going to be for the next five years or so, possibly ten. That’s not a point against it, but you need to be in it for the long haul, or you’ll make a loss. If you envision selling in the next five years, now as it as good as its going to get.
Having said all that, I would keep it, if you can possibly get a half decent mortgage (sub 4% for five years). Holiday lets have tax advantages over regular rentals, you don’t have property, and the transfer into your name won’t attract stamp duty. (You will have to pay CGT if you gain and sell, but you always will).
If you have good jobs, you should be able to raise a reasonable mortgage. The process of selling property is expensive in itself, and really affects the return on the investment. If you can keep a property and it’s profitable it’s generally better in purely financial terms. Property is a good long term investment, if you have the ability to sidestep some of the process costs (SDLT, CGT, solicitors fees etc) it really boosts it.
In your situation, assuming you are happy with where you are renting, I would cost out the following:
Move to Salcombe and try commuting. You can get a residential mortgage (much cheaper). No CGT if you can stick it out for a year (even if you have M-T let in London, make it your main residence for a year and a day, and you don’t have to pay CGT when you sell). Depending on how much wfh you can both do, and costs of commuting/rent in London, you may be able to save for a deposit too, if you don’t like it. In theory, if didn’t continue to use it as your main residence, you would have to move it onto a different mortgage after one year. In practice, unless you apply for another mortgage, I suspect its very common not to move it. Not exactly above board, but not exactly a heinous crime, either. (All of my buy to lets ARE on the proper mortgages). This one depends a lot on whether you like Salcombe and the mortgage rates you can get.
Or (my preferred option). Get a mortgage for say 50% of the property. Buy out your SS, engage an agent and let it, Holiday lets are very in demand just now. Invest the extra 15% in something steady and use the income and any spare cash you have now to add to it and save like mad for a deposit for a flat in London. I would prioritise this over any other savings and pensions for a couple of years, and seriously think about lifestyle spending too. It’s a seller’s market now, but in 2 - 3 years, I think it will be a buyers market, If you can catch it, you’ll be in a great position to buy. Generally, you’ll be pretty well set up for life.
Especially in London, where everything is very expensive, and especially if you are planning a family, which will eat into earning potential, an additional income stream is invaluable. The costs of selling (or rather, what you save on inheriting and not buying) make it almost a no-brainier, and the slow down in the housing market means you will be in a great position to buy medium-term, and a really great financial position long term. I don’t think you will have to pay second home SDLT if you buy in London and Salcombe is a let. You are allowed one shot at first home SDLT on your main residence. So even if you have second homes, you can still sell and then buy another first home with the benefit of residential SDLT, even if there is a gap, or an overlap. The second home doesn’t automatically shunt up to become your first home, you have to make it your main residence to do that. I’m not one hundred percent sure if this will apply to you, as you don’t own a first home at present, but I think it should. One to double check (don’t expect your regular solicitor to know. I had to print out the relevant pages from HMRC and show mine. I did sell a first home, waited a year or so, then bought another main residence, while keeping my buy to lets. I didn’t pay second home SDLT on it, as it was a replacement first home, not another second one iyswim)
It doesn't really matter if you like Salcombe or not. The point is do other people. If you want to holiday somewhere different, you can afford to do that if this is a popular holiday let. Selling and buying somewhere you did like would be very tax-inefficient (although thats a very objective view).