Financing holiday property
How do I finance a holiday home or holiday flat?
Financing a holiday home is very different from buying your own home. Many buyers of holiday properties are tempted by the current low interest rates to take out an excessively high loan for their second home by the sea or in the mountains. In order to be able to pay the repayments and monthly fixed costs, they often assume that the rental income will be too optimistic.
As a result, the monthly repayments and fixed costs cannot be fully covered by the rental income. We'll tell you what you should look out for when financing a holiday property.
Equity capital when financing holiday properties
When financing a holiday home/apartment, banks expect the buyer to have more equity than for a "normal" property purchase. For non-residents, this is often up to 60% equity. Many banks also require buyers of holiday homes to have a higher annual income.
Ongoing costs in addition to the amortisation
- Agency commissions for letting (cleaning, handing over keys, etc.)
- Costs for additional marketing, e.g. on holiday home search portals
- Rising ancillary costs such as housing benefit, electricity, water, insurance
- Charges from the community of owners
- Second home tax, taxes on rental income, etc.
- Seasonal bottlenecks in letting, e.g. low season, rainy summer, etc.
House bank or bank at the holiday resort?
When it comes to financing your holiday home, it is often worth negotiating with a local bank, as banks in regions with numerous holiday homes often have a lot of experience and expertise in financing such properties. In addition, banks often have reliable experience of the expected rental income and ancillary costs. This means you will receive an expert financing offer and often also get good tips on letting agencies, tradesmen etc. in the region.
Checklist for financing discussions
- How much equity do you have available?
- Would you like to use the holiday property yourself or rent it out to holiday guests?
- Should the holiday home be a second financial pillar or part of your retirement provision?
- Do you want a holiday home for yourself or would you prefer a rental property?
- In which holiday region, in which country would you like to buy a holiday home?