Buying a second home is a major financial step, and if done correctly it could be one of the best decisions you’ve ever made. Some people are tempted by the idea of owning a holiday home, somewhere you can escape to when the stress of life gets to be too much. Others are thinking about buying a property to rent out as an additional income source. Either way, our guide covers everything you need to know about buying a second property, whether it’s a holiday home or a buy-to-let.
Do you see this as a great investment opportunity or somewhere you’re looking to spend some quality time? When you look for funding, which we’ll mention below, you’ll have to specify what you intend to do with your old house and what the purpose of the new house is. The purpose you choose will also have different implications for taxation and insurance. Whatever choice you make, AIG covers both options with a holiday or rental home insurance policy.
As with any big purchase, this will be your most pressing concern and something that will require strong consideration. Most likely you will be looking to get a loan from a bank to finance this second house. The suggested option would be Equity Release. Equity is the difference between the value of your property and what you owe on your mortgage loan. If the value of your home is greater than what you now owe on your mortgage, you could ‘top up’ your mortgage through Equity Release, which is an additional mortgage loan secured on the property. With equity release, you can borrow anything from €15,000 up to 90% of the value in your home.
As with all large loans, it’s important to remember that the Central Bank has rules for anyone buying a second home. The most that you can borrow is 80% of the value of the home meaning you will have to put up a minimum of 20% for a deposit. The amount you can borrow also depends on what you can comfortably afford to repay monthly, this typically should not exceed roughly one third of your disposable income.
This advice stands for both rental properties and holiday homes. If you plan on using your second home for rental income you need to buy it in a location that will always be in demand. And if it’s to be the location for your holiday home you should spend some time in the area and check out the local amenities to make sure that it’s the perfect place for your dream getaway.
Another thing to consider is distance from your current home. If you live in Dublin, for example, it’s a lot easier to text your partner on a Friday and suggest a weekend getaway if your holiday home is in Wicklow as opposed to Donegal. You’ll want to make sure that you use the home enough to justify such a large investment.
This is a tip that cannot be underestimated. With a purchase like this there’s so much to consider, so it’s best to work with someone who knows the process inside out. A real estate agent has access to all sorts of information that you may not, as well as insight and experience in the market. They will know all the things to look out for, even some things that you would never have thought of. Working with a professional will save you time and spare you plenty headaches, plus you could potentially save money and get a much better deal in the end.
A holiday home should be a place of relaxation, so make sure you’re not putting yourself under too much financial pressure. Will you be able to afford the second mortgage payments? Consider other major expenses or debts that will be arising in the future, such as children’s education, car purchases or major home repairs. Consider the start-up costs involved, such as furnishings and upgrades—as well as the ongoing costs, including maintenance, major repairs and the travel costs involved in the house.
An extra rental property can be a great investment and a brilliant way to earn some money, but it does come with its own set of challenges. Your rental property is similar to a business that requires time and energy. Your tenants will expect that their home be kept in a liveable state and will require instant responses to any problems that they encounter. Cleaning services, insurance and general maintenance are costs landlords should include in their budget, as well. Since you can’t guarantee rental income, make sure you can afford these costs (including a monthly mortgage payment) on your own.
Whatever usage you want to get out of your second home, ensure that it’s protected with a comprehensive home insurance policy. Get an online home insurance quote now with AIG today and find home insurance coverage that best suits you and your needs at an affordable price, or check out our home insurance FAQs for more information.