The rental market

Owners who choose to rent out their second home do so for a variety of reasons, but a source of income and covering costs are the primary drivers. Therefore, the health of the holiday rental market is increasingly important to these owners.

The number of days the property is occupied and how this has changed is a good measure of the market. Across all the countries in the survey, a third of owners saw the booking rate increase, 45% said it stayed the same, and 22% saw a decrease.

There are differences depending on where the property is located. In Brazil, only 15% of owners saw an increase in booking rate while 63% saw a decrease. On the other hand, in Canada and the US, just 12% and 15% of owners recorded a fall in booking rates respectively.

The difference can reflect the economic situation in the country as well as international relations, and therefore tourism numbers. That said, across all countries, there are properties that have seen the booking rate increase, demonstrating that even in a difficult market, providing the right product in the right location can still attract visitors.

Mortgage trends

The method of funding for acquiring a second home has changed significantly. Nearly 50 years ago, 40% of second homes were inherited or gifted across all the countries in the survey. This has now shrunk, and the market is dominated by cash buyers and those who take out a mortgage in the country the property is located.

What these figures hide is the difference between nationalities. We speak to Miranda John from SPF Private Clients who tells us more:

There are considerable differences in the availability and flexibility of mortgages across Europe. The biggest factor determining the mortgage finance open to you is usually residency i.e. where you live and pay taxes.

The UK has some of the most developed lending markets, so finance secured on a main residence or other property owned is relatively straightforward. Belgian and Dutch banks operate in similarly competitive markets and can make borrowing easy for existing clients.

These are unusual as banks in many European countries, Portugal and Spain for example, will only provide mortgages at the time of purchase. Raising finance on property in these countries post-completion is rarely possible, so it is important to be informed about the options during the buying process as the equity used cannot be released at a later date.

In the past lenders made the distinction between property for personal or rental use but this has largely disappeared, and there are no differences in terms of the interest rate of the mortgage whether you intend to rent it or not. That said, the banks require borrowers to be able to afford the mortgage without taking into account potential rental income, so no buy-to-let mortgages as per the UK model exist.

A local mortgage will match the loan with the currency of the asset (the property) and is particularly useful if rental income is received. A mortgage taken out in the country where the property is located also provides reassurance as the bank will have access to information on builders and developers and an independent valuation will be undertaken.

Cash buyers increasingly see the merits of a mortgage as it offers a solution to converting the full balance on what may be a volatile or poor exchange rate. As interest rates in Europe remain low, and the prospect of rises seems unlikely this is set to continue.

Furthermore, many European banks offer long-term fixed products so the loan may be fixed for 20 or even 25 years and borrowers are able to lock into the historically low rates. A final point with a local mortgage is that this can be used to offset certain taxes such as the Wealth Tax in France whereas funds raised elsewhere would not.

Miranda John, Director, International Property Finance SPF Private Clients

_{Read the articles within Report: Second Homes below.}