Arranging your holiday home mortgage: what you need to know

The idea of buying a holiday home is very exciting. But there is always the question of how you are going to finance it. Unless you have substantial cash reserves from your main property, you will need to look for a holiday home mortgage.

Nowadays that shouldn’t be all that difficult. As demand for holiday homes increases, more and more lenders are providing holiday home mortgages. If you are planning to let your holiday property out on a commercial basis, it can be slightly more difficult. But if it is simply for the use of yourself, family and friends, there isn’t usually a problem.

A typical Holiday Home Mortgage will provide a maximum of 70-80 per cent of the value of the property. Lenders usually insist on a minimum property value, which is usually around £70,000 - £80,000. Of course the lender will need to be satisfied that you can afford the repayments, on top of your first mortgage if you have one. Some lenders will lend on properties in England, Wales and Scotland, but others exclude Scotland for a holiday home mortgage.

You can usually opt for a capital repayment mortgage or an interest-only mortgage. If you are in a position to make higher repayments, obviously a repayment mortgage will be preferable. The sooner you pay it off, the sooner the holiday home will be yours. An interest-only mortgage will mean your monthly repayments are more affordable, but you will have to find some other means to repay the capital. This shouldn’t be a problem if you are expecting an inheritance, or if you plan to sell your first home eventually. Otherwise, of course, it will have to be repaid by selling the holiday home.

You can often negotiate a more favourable rate on your holiday home mortgage, especially if you are in a position to pay a larger deposit. Some lenders offer you the choice of a fixed rate or a variable rate. A fixed rate can look tempting if there’s a danger that rates may soar, but can be very frustrating if rates drop lower. A variable rate holiday let mortgage often starts with a honeymoon period that can also look very tempting, but then it will revert to the current rate. You may also be able to get a split rate mortgage that gives you the best of both worlds.

Finding a mortgage can be a very stressful experience. Obviously for your holiday home mortgage you want to avoid stress as much as possible. Talk to a financial adviser or an independent mortgage broker that specialises in holiday home mortgages about the kind of arrangement that best meets your needs.

Sean Horton is a Director of Holiday Let Mortgages who offer Holiday Home Mortgages