How – and where – to buy a holiday home in the UK

Holidaying in the UK has rarely been more fashionable. When the pandemic forced us all to look closer to home for our city breaks and countryside trips, the rolling fells of the Lake District and the sunny beaches of the Isle of Wight swiftly became go-to destinations.

It seems, on the surface, like an ideal time to invest in a holiday let. 

But how much money do you really need, is it a good investment, and, as the mood sours on second homes, how do you avoid the tourist hotspots preparing to clamp down on holiday lets? Here’s what you need to know.

How much money do I need to buy a holiday home?

The average second home costs about £308,000, according to the estate agent Hamptons, but this figure drops to £174,000 in Scotland and rises to £1.14 million in London.

If you plan to keep the property solely for your own use (and not officially rent it out), you will need to get a standard residential mortgage, unless you’re a cash buyer.

Not all lenders will give you a mortgage for a second home, but those that do will take into account all the running costs for your primary residence — council tax, mortgage and necessary bills — in their affordability calculations. This means that you need to earn more to pass their checks than you would for a typical mortgage.

If you plan to rent it out, you will need a holiday let mortgage. These loans typically require a deposit of at least 20 to 25pc and a separate income of £20,000 to £40,000.

How much you can borrow is based on the rent you can charge, as well as interest rates and other costs. Some banks will use the amount you could make from the property if it were a standard buy-to-let, but others will look at how much you would earn if the property was let as a holiday home for 30 to 36 weeks a year, across the high, medium and low season.

As a rough guide, you would need to make about £30,000 a year from the property to get a £350,000 mortgage, or about £8,000 for a mortgage worth £100,000. 

Do you pay stamp duty on a second home?

The bad news is that if you are already a homeowner, you will have to pay a 3pc stamp duty surcharge when you buy your holiday home.

This means that you will pay 3pc on the first £250,000, 8pc on the value between £250,000 and £925,000, 13pc between £925,000 and £1.5 million and 15pc on anything above £1.5 million.

On a £300,000 property, the bill would be £11,500. 

The good news is that there are other tax advantages to running a holiday let. Unlike a standard buy-to-let property, you can deduct the interest payments and running costs from your taxable profit, as long as the property is let for at least 210 days a year.

You can also pay business rates rather than council tax if it is rented out for at least 70 days a year and, as holiday lets are treated as business assets, the property could potentially qualify for Business Asset Disposal Relief when you sell, lowering your capital gains tax rate to 10pc.

Is a holiday home a good investment?

As with all investments, there is an element of risk. While house price growth in typical holiday let areas has been strong (property prices in Blaenau Gwent in Wales and Bute in Scotland both grew by 12pc last year) there is no guarantee this will continue.

In fact, the Office for Budget Responsibility has projected that prices will fall by 9pc by 2024 before rising again in 2025.

However, there is money to be made. The average income of a holiday let owner was £28,000 in 2022 according to Sykes, up 33pc on pre-pandemic levels. 

Your running costs, meanwhile, should be less than half of what you make. Sykes said that the average cost of running a holiday let — including management fees, council tax, utilities, cleaning costs and property maintenance — was around £11,500 a year.

How long can I live in my holiday home for?

If you have a holiday let mortgage, you cannot live there permanently or claim it as your primary residence. However, most banks will allow you to have personal use of the property for up to 90 days a year. 

If you plan to stay there, double check the mortgage T&Cs before you take out the loan.

If you own the property outright, you can come and go as you please. However, you have two years to decide which home is your “principal private residence”; the property which is exempt from capital gains tax if you sell.

Where is the best place to buy a holiday home?

Where you decide to buy will depend a lot on your personal preference – are you desperate for a coastal getaway, or would you rather be in the mountains? Based on finances alone, it’s no surprise that the tourist hotspots are the biggest earners.

According to Sykes Holiday Cottages, Cumbria and the Lake District was the highest earning region last year, with holiday lets bringing in an average of £36,000. The average made from a holiday home in the Peak District was £33,000, while holiday let owners in Cornwall and Devon made an average of £32,000 in 2022.

However, the amount you can earn should be balanced against how much you stump up for the property. Blaenau Gwent, south Wales, is among the top picks for holiday let investors, according to Sykes, as the average house price is £130,000 while the average holiday let makes £20,000 a year. In Lancashire, the average house costs about £200,000, and you can make £23,000 a year.

But where will I be welcome as a second homeowner?

It is no secret that some local councils are hoping to clamp down on second homeownership, based on the thinking that holiday lets push house prices skyward and prevent locals from getting on the property ladder.

Last year, residents of Whitby, on the North Yorkshire coast, voted to ban any new build houses in the area being sold as a second homes or a holiday lets, and Brighton and Hove City Council are drawing up similar plans in some areas of East Sussex.

Councils in Wales can now cap the number of second homes in each area, and in Scotland second homeowners will soon need to apply for a licence with their local authority.

The Government has also tightened the rules on second homeowners paying business rates rather than council tax. Now, you have to prove that the property is rented out for at least 70 days and is available to rent for 140 days a year to do so. And if the properties are not in use for at least 70 days a year, councils have the power to double their council tax bills.

If you are concerned about existing or potential rules — or just hostility from the locals — it could be worth avoiding areas with high proportions of second homes.

Argyll and Bute in Scotland is the holiday destination with the highest concentration of second home buyers in the UK, according to Hamptons, with 11pc of the properties bought in 2022 being second homes.

Elsewhere, the hotspots are Cornwall and North Norfolk, both with 9pc of homes bought by second homeowners, Dorset and Bath and North East Somerset, with 8pc respectively, and the Isle of Wight and Pembrokeshire, each with 7pc.