Taking out a mortgage is the most common method of paying for a holiday home, but UK banks and building societies have tightened their lending criteria since the financial crisis of 2008.
Obtaining a mortgage loan for a second home is basically not that different to securing one for a primary residence. The applicant needs to provide a specified amount of capital for the deposit, along with a clear plan for how the repayments will be made. Deals can be made to make these payments from your existing income, from the equity in your primary residence, or through rental income on the holiday home. The latter will require a clear and sound business plan.
One way in which the banks have tightened lending criteria is by asking for more substantial deposits. The basic rules here are that if you pay more up front, you will have a better range of options and more favourable rates, so try and work out what is the maximum figure you can afford to put up. It is worth noting, however, that if you’re letting the property your lender will calculate your repayments in a different way. Some of the ‘best buy’ offers you see on the high street will also not be made available for second homes.
Due to the nature of the current lending restrictions, it is worth looking into the following options:
A mortgage broker which specialises in loans for second homes may secure better rates and make the market easier to negotiate
If you’re buying a new-build home, the developer may have their own finance options in place
Holiday parks may also have their own finance plans in place to assist with purchase
The estate agent selling the property, if based in an area where many second homes are sold, may be able to provide some suggestions on popular lenders