Sun holidays, city breaks, ski trips – the pandemic has grounded us all indefinitely, even with the "green list". With all but essential foreign travel strictly verboten, holidays abroad are out. Owning a holiday home in Ireland is coming into its own. But how much will it cost, and can you make it pay?
Search is on
Searches for holiday home rentals climbed by 112 per cent in June compared to last year, according to data from myhome.ie. Booking a staycation became a frenzy for those desperate to get away from the home that was also their office and a school.
Kerry, Sligo, Galway, Clare and Donegal saw the highest number of searches with lockdown-jaded families seeking solace along Wild Atlantic Way.
But what about next year? Those who struggled to get a refund on cancelled foreign holidays will be slow to rebook amidst ongoing uncertainty. For others, swimming pools, sun loungers and ski lifts, once blithely shared with other holidaymakers, have lost their allure.
Even the fail-safe staycation option of nanna and grandad’s has become tricky. Buying a bolthole of your own is one option to consider.
Buy versus book
If you're tempted to buy a holiday home and haven't won the Lotto you'll need a mortgage. The maximum loan-to-value that a bank will offer for a holiday home is 80 per cent, says Joey Sheahan of mymortgages.ie. So for a €300,000 property you'll get a loan for €240,000.
“Some banks will offer home loan interest rates for holiday homes, whereas others may charge a buy-to-let interest rate, which would be higher,” says Sheahan. “€240,000 repayable over 25 years on a three-year fixed rate of 2.55 per cent would be €1,082 monthly. The same loan would cost €1,334 monthly based on a buy to-let-interest rate of 4.5 per cent variable.”
Compared to the cost of a week-long staycation, is there a case to be made for a monthly mortgage payment on a holiday home instead?
A break in a popular seaside location, family hotel or self-catering resort here can be pricey. A peak-season stay in a four-bed holiday home in the hotspots of Schull, Kilkee or Roundstone this summer will set you back from between €1,000 and €2,000 a week.
Fast forward to the Easter 2021 school holidays and a deluxe terrace family room sleeping four with breakfast at the popular Inchydony Island in Co Cork will set you back €235 per midweek night.
Next July a seven-night stay in a four-star, three-bedroom Woodland Villa at Parknasilla Resort in Kerry is on the market at €1,850. Add in the October school mid-term, new year and some long weekends and costs rack up.
Few families will spend €13,000 (an estimated holiday home mortgage bill), on holidays in a year. But by spending that on a holiday home it could be argued you’re not just investing in memories, but a potential asset too.
Of course the cost of owning a holiday home is more than just the mortgage.
"The benefit people get out of a holiday home is fantastic, but it's a second house. Think of all the costs you have for your primary home and double it," says Maeve McCarthy of Charles McCarthy estate agents in Skibbereen, Co Cork.
“You’ll want the same level of comfort you have in your own home, and for those home comforts you will have to pay.”
Research by AA Home Insurance estimates running costs for the average Irish home, and much of these are replicated in a holiday home. It calculates annual TV licence, broadband, insurance, appliance, maintenance and repair costs at about €3,000. Electricity is likely to cost €1,000, with a further €815 spent on heat.
While utilities will cost less than your primary residence, some heating when you are not there will guard against damp.
Grass-cutting is another overlooked cost. "On a typical west Cork property with a big lawn you could be talking €1,000 a year," says Jim Griffiths of Beacon Properties, a property management and lettings company based in Baltimore.
You can add the cost of a window cleaner too. Bin charges will be about €30 or €40 a month for the holiday season. If the house isn’t on a bin route you’ll have to drive to a local centre.
Engaging a management company or caretaker to keep an eye on things when you can’t can be money well spent. In fact, some holiday home insurance policies will require it.
“If you’ve been working hard all year and you come down for your summer holiday to find the garden is overgrown, the gutter has fallen off or something needs painting, the two-week holiday becomes two weeks of work and then somebody says, ‘I’d prefer to be in Portugal’,” says Griffiths.
“If you lock your house up and turn up 10 month later, it’s not going to be the same as when you left it.”
Let it be
If your plan is to rent the holiday home to cover running costs, do the sums first.
“Very rarely does a holiday home make financial sense unless you have a very popular property with a large rental income and it rents through the year. Unless you have that it really doesn’t pay,” says Griffiths.
He advises would-be holiday home owners to expect to spend a third of their rental income on management costs. “From taking the booking, to meeting people, to using contract cleaners who will leave the house all square for the next letting, that cost is roughly a third of your rental income.”
A typical laundry bill – bed linen, towels, bath mats, tea towels – on a four-bed house can be up to €100 between lettings, he says.
Expect to pay a commission on bookings too of 15 per cent, plus VAT. The costs don’t change that much for a smaller house even though rental income will be less.
“By renting it out all you are doing is recovering the cost of your oil, insurance or gardening, and obviously keeping it looked after,” says Griffiths.
With mortgage, running and letting costs it may not feel like you are making a profit, but Revenue doesn't see it that way. Income from renting a property can be taxed at up to 52 per cent depending on your marital status, tax credits, reliefs and any other income, says Joanna Murphy, chief executive of Taxback. com
Take someone with rental income of €8,000 in addition to a salary of €70,000 – the tax on rental income would be €4,160, or 52 per cent. Deductible expenses that could reduce the tax bill include insurance, repairs, maintenance management fees and mortgage interest. But if you only rent it for eight weeks a year you can only deduct two-twelfths of these. Expenses incurred between two lettings are allowable, however.
Income from a holiday home isn’t going to make you rich, says Griffiths.
“My recommendation to people, if they are going to buy a holiday house, is to do it only if money is no object, or if you are going to use that house on a really regular basis – weekends, at Christmas, and you are going to have three or four weeks in the summer. Then you fill out a number of weeks around that to pay for a few bills and keep it running.”
There’s local property tax too. This is based on the self-assessed market value of your property. If your holiday home is valued at between €250,000 and €300,000 expect to pay €495 a year. For a house valued at between €300,000 and €350,000, you’ll pay €585. Rates may change when the current bands, in place since 2013, expire in November.
“Local authorities can vary the local property tax (LPT) by increasing or decreasing the rate by up to 15 per cent”, according to Joanna Murphy. For example, for 2020, Cork County Council has increased the rate by 5 per cent on the 2014 rate; Clare County Council has increased it by up to 15 per cent.
Pass it on
On the upside, a holiday home can hold decades of happy memories, and a thoughtful will can ensure it doesn’t become a millstone. If your intention is to leave the property to your adult children, for example, stating that it can be sold on your death with the proceeds split is probably the cleanest course. You could give one of your children the option to purchase it before it is put on the open market.
If you have two children, for example, and were to leave them an equal share of a property, be mindful that their total tax-free threshold as your children is €335,000 each. Anything they inherit above that will be taxed at 33 per cent.
Another option is to leave the holiday home to one of the children, including a condition that the others would have the right to reside in it. The child who inherits it, however, is the only one on the hook for tax.
Caravan of love
If a holiday house seems onerous, you could always go old school and buy a static mobile home. Fees for the Easter to October season at Glenross Caravan Park in Glenbeigh, Co Kerry, are €2,600, including bin collection, says Kathy Fleming of the park. Electricity is metered, and lettings are prohibited. That's six months of budget-friendly fun right there.
Ease and convenience
In Maeve McCarthy’s experience the majority of holiday home owners don’t rent them out. Those who do can recoup some costs but will incur others.
“Unless you have hired a management company you could have someone ringing you in the middle of the night saying the washing machine isn’t working,” she says. “A holiday home is about ease and convenience. People ask how much rental income will I get, but then when I see houses that I’ve sold not many of them come up for rent.”
“If you are looking at the numbers all the time it will just worry you to death and become a millstone,” says Griffiths. “I see a lot of those. They get all excited, then they buy the house, and then a few years later the novelty wears off.”