Buying a holiday home when you have a big mortgage

[Shinyhob]

Prepared to be told this is a stupid idea, but it’s what my parents did many moons ago.

Dh and I are young (28 and 29). We bought a flat last year with a 90% mortgage. We could “afford” a much more expensive place, but are happy with our modest home. It’s a 2 bed flat in zone 2. Our mortgage left is roughly 700k.

We love a particular holiday destination and would love to own a place there for friends and family, but also as a project to do up (both workaholics yes). We have seen a small house that’s liveable but with amazing scope to extend. It’s on a private estate built in the 80s and 90s for overseas buyers - so wouldn’t be taking from the locals market. It’s £250k.

We can afford another £1500 a month mortgage payments fairly easily.

Would we be crazy to do this?

You've obviously got some big salaries, but do you have other savings and investments?
To have over a million tied up in (loans for) property, and nothing else is very over exposed.
However if you are also paying into ISAs and have a decent amount of cash behind you, why not go for it.

"It’s on a private estate built in the 80s and 90s for overseas buyers - so wouldn’t be taking from the locals market. It’s £250k."

That caught my eye, where are you talking about exactly that was specifically built for overseas buyers ? I'm genuinely interested ?

With regards to the idea behind your post. It's a gamble. You must know that. Your already massively in debt on property. Have you considered crypto maybe or just straightforward savings and investment funds ?

I wouldn't fancy it, personally. Managing a renovation project within easy driving distance is hard enough, let alone in another country, especially if you are working full time.

What are the local taxes like? If it's anything like the UK, taxes on second home owners are becoming punitive.

As @DrySherry says, I'd prefer to be a bit more diversified in terms of investments / exposure to different asset classes. Do you pay into pensions?

Better to diversify I agree and not have all your money wrapped up in property.

We have diversified investments - we also take the view that life isn’t just about investments. You have to enjoy your life too. Dh says this even as a financier.

Could you cover both mortgages on one salary if one of you couldn’t work for any reason? If not and you couldn’t quickly sell the holiday property your home could be at risk.

As pp^^ could you afford both if one/other/ both jobs or health goes tits up

Sounds like you’ve made your mind up 🤷🏼‍♀️

Which country is it in? Do you have connections there/speak the language? I’ve always been pretty nervous of buying abroad if I’m not familiar with all the red tape in the area.

Are you planning on kids in the future? Because that spare £1500 would instantly get eaten up by nursery fees.

This isnt logical as a reason not to though is it

We have all our money 'tied up' in our house. Thats because we dont own anything else, havent got any savings, and this is our one asset. Its now mortgage free but thats irrelevant in some ways

How is someone 'over exposed' by having a home or property. We dont earn enough to have savings or posh cars or jewellery or any other thing like that, it only just happens that we have our home and thats it.

I don't think it's a crazy idea per se although we are far too risk averse to do it. I'd worry about what country it is in though and the value of the investment - I know a few people who have lost a huge amount on those kind of properties in different countries (US and Europe). I think you'd have to basically write off the investment and treat it as 'fun'.

You (and lots of other people) may not earn enough to have diverse investments, but the OP clearly does. If you are able to diversify by holding more than one class of asset, it is normally a good idea to do so.

Are you planning on having children? Your 'workaholic' lifestyle won't continue with babies in tow. If you plan on kids I'd wait until you make the massive relationship shift to being parents before taking on another property.

I don’t think anyone should own two homes: it’s greedy.

Are you planning to have kids? If so then I’d save the £1500 for nursery / school fees. It’s always good to have saved a few years worth of fees before you have your children

Depending where you're looking to buy I'd advise caution. Many tourist destinations are becoming very anti-tourist at the moment. Spain and the Balearics especially so, and Portugal is starting to head this way.

I personally would overpay the mortgage as much as you possibly can then when you've significantly reduced that look to invest elsewhere. 90% LTV is risky when you look at how the land lays on a global scale.

Have you factored in all the extra costs on top of the mortgage e.g estate service charge, renovation costs, travel costs, furnishing, cleaner, utilities?

Are you happy to go on holiday to the same place year in year out?

Will it be easy to sell on if your needs change in 5 or more years time? What you'll want as a family in your 30s won't necessarily be what you want now.

Will your 2 bed flat in zone 2 still suit you if you have a toddler and a new baby?

Bearing in mind that your view of life is that it's about enjoyment not just investments, it's worth staring at that point and working backwards.

if you buy this place your holidays will be taken up with renovations and extensions and all the legal and planning stuff that goes with that. You'll be dealing with builders and tradespeople and making multiple decisions all during your holiday time or from a distance, whilst working.

The mortgage and add on costs this place are likely to cost you about £25 - 35k a year before you even think about your renovation budget.

You're in your 20s, you can either do all of the above or you can take that £25k plus and blow it on a series of the most amazing, fuck off adventures in a wide range of incredible places.

I know what I'd do.

That £250k pays for a lot of hotel stays with no hassle of things like broken pipes, upkeep, pool maintenance etc etc

Is it the Algarve?

I’d save the money and pay to stay in a nice hotel instead, dealing with a foreign renovation isn’t on my bucket list.

We did this Op - big mortgage & bought a holiday home back in the seaside town I'm from. We love it. We do go to other places on holiday but go there a lot too. I also go alone & / or with the DCs to visit my mum & have taken friends there many times on holiday too.

In our view, if we can't afford it or get bored of having it, then we'll sell it & will have made a decent return. I can't ever imagine selling it though as we plan to semi-retire there. I say go for it!

I think it is a great idea. It is great having more than one property.

You could also rent out the holiday home when you aren't using it for passive income later on down the line.

With your current property you can make overpayments of normally 10% (double check mortgage offer details) and in a few years when you have 25% equity in the property you could consider a Let to Buy strategy if you wanted/Needed a bigger place at that point.

Take into consideration that holidaying in your holiday home is work too. My parents own one and spend 1 out of every 2 week holiday every 6 months working on it/maintenance. E.g. re-paintjng, gardening, cleaning, diy
They don't mind as they enjoy it, but I would as I don't c those jobs as some5hing I want to do on holiday.
You could look into timeshares e.g. holiday property bond as an alternative investment that is more flexible and less work intensive

Also great salaries for your ages, enjoy it!

Don’t do it. Too much hassle.
Get your own place paid down/off. Have some amazing high end holiday in fancy hotels. Once you’re mortgage free, then consider it.