A personal holiday home may be a faraway dream for some, but for the smart-working individuals, a holiday home is an investment reality and not only offers a personal place to spend time away but can potentially tender a near-immediate return from short and long-term rentals. Buying a holiday home is not always an easy process however, particularly abroad where greater restrictions apply for foreigners purchasing land or property and the threat of Brexit looms over property investors. Not to mention, popular holiday spots like St Ives in Cornwall have restricted sales on second homes in order to prevent financial struggles for their local, homegrown businesses. If you are putting plans in place to purchase your own holiday home or second home, consider the following points;
When purchasing a second/holiday home abroad, you’ll want to check for any restrictions in purchasing on your given passport. For example, the recent ban of foreigners buying property or land in New Zealand, in a bid to prevent rising property prices, most notably in and around Auckland. Some countries will have similar restrictions in place, while others may have restrictions on certain acreages of land or allow property purchase but not freehold, or increased taxes, as is the case in Sri Lanka, where foreigners must pay a 100% transfer tax, doubling the price of any purchase.
There are many countries that offer no restriction on who can buy property or land and offer a fairly straightforward process throughout, most recently Spain, Italy and France where favourites for a low-hassle holiday home/second home purchase however Brexit may have an effect on the ability for Britons to purchase property in the UK.
If you are hoping to purchase property abroad, you’ll need to consider how often you are going to using the home, will friends and family be occupying the property in any interim period or can the property be safely rented as a holiday home, either privately or via a dedicated service like Airbnb. Will a management company be required to look after and maintain the property while you are away and how can you go about finding a trusted company, particularly with factors like language barriers and budgets? While cost is certainly something to consider, you’ll also want to factor in how much time resource you can spare to manage or maintain a property abroad, especially when having to travel by air between locations.
Purchasing at Home
Purchasing at home, in our example the United Kingdom, is a simpler process, much like buying an initial property, although usually requiring a greater down payment. Local councils may offer restrictions, like aforementioned St Ives, especially with increasing cries over the current housing crisis and more areas introducing similar bans, with Northumberland residents having voted on the issue of new holiday home construction earlier in 2018. Over in Wales, the Welsh Government introduced an increased council tax rule for second homes, although make sure to double check specific council areas as increased rates vary between 25% to an eye-watering 100%.
You’ll also be affected by a greater stamp-duty tax when purchasing a second home that doesn’t replace your main dwelling, with rates confirmed from April 2016 seeing potential holiday home owners paying 3% stamp duty on the first £125,000, 5% up to £250,000, 8% between £250,000 and £925,000, 13% for the £925,000 – £1.5million bracket and 15% on properties valued above £1.5million.
To avoid costly increases from council areas protecting local businesses against empty second/holiday homes, make sure to research the tourism in the area and potentially choose areas one or two postcodes away from particularly popular holiday destinations that could be affected by similar tax increases or restrictions in the future. Already developers, investors and buy-to-let landlords have been looking at areas surrounding St Ives, like Penzance and Truro, which may soon follow St Ives and start imposing restrictions on second property purchasing.
Options for Purchasing
While mortgaging or owning a holiday home outright are advantageous scenarios, they may not be the best option, especially for business travellers looking to purchase a second property in a densely populated city that only require accommodation a few weeks of the year but require more freedom or space than a typical hotel suite or penthouse. Alternative options to a mortgage include;
Joint ownership offers a couple of different options that affect the passing of a property should one of the joint owners pass away, a joint tenancy gives all named parties equal rights to the whole property, although prevents shares passing to anyone other than another named party on the agreement. In contrast, a joint ownership with tenants in common clause divides the property up into different shares which can be left to individuals not on the named agreement in the event of a shareowner passing. Joint ownerships are an excellent option for purchasing property but can become overcomplicated if relationships sour or undergo difficulties in the event of a breakup.
Shared ownership schemes have stricter criteria and, in some cases, may not be available for second homes, although private sector arrangements do include terms for individuals that wish to purchase a second or holiday home. Shared ownership allows an initial share purchase of between 25%-75% with the option to purchase further shares over the lifetime of the shared ownership.
Similar in terms to shared ownership, fractional ownership sees second/holiday home owners purchase a fractional share of a property which allows them specific timed use, depending on the size of the share owned. Most commonly compared to timeshare properties, fractional ownership differs in that when purchasing a share, you purchase a share of the brick and mortar property, rather than a share of the available time. Fractional ownership was initially introduced for yachts and private planes, so the calibre of properties available are typically considered prestigious and more luxury than your standard family home, more information on the type of property available via luxury fractional ownership can be found here.
Different ownership options will suit different individuals, where a family may see a better return from a jointly purchased holiday/second home, an established businessperson would be better suited to fractional ownership. Make sure to research each option comprehensively and look at the pros and cons between the two. For instance, a jointly owned property may offer more flexibility on time, but a fractional ownership property is likely to be better managed and maintained by the property managing company offering the fractional ownership opportunity.
The joys of owning a second property or holiday home are numerous and offer an excellent opportunity for investment, so don’t be put off by certain council area restrictions or country bans but instead endeavour to inform yourself before proceeding with your choice and good luck with your new property!