Buying a holiday home or a furnished holiday Letting on the Isle of WIght

Sunset at Gurnard

If you want a second home/holiday home or a Furnished Holiday Letting on the Isle of Wight you'll need to consider a few things. This is certainly not a comprehensive list, it's more of a splurge of thoughts which might help guide someone in the right direction.

Most of this applies all over the UK but I'll throw in some local place names to keep it interesting.

Please note, I'm not an accountant and the bits which mention tax should be seen as a vague pointing in the right direction rather than up to date or water tight advice.

• There are about 3000 second homes on the Isle of Wight according to a group called Action On Empty Homes. Other figures I've found suggest there are 71000 residential properties on the Isle of Wight so about 1 in 23 are second homes. So, second homes are fairly common on the Isle of Wight but it's not like parts of Cornwall such as Padstow which has a population which doubles during the summer.
• There is divided opinion amongst permanent residents of the Isle of Wight about second home owners. It's hard to reach a consensus as comments sections on newspapers and on Facebook posts do have a habit of bringing out the world's more, ahem, opinionated people. However, you'll find most people on such forums tend to say one of these three things a) 'why shouldn't people buy second homes if they can afford to' or b) 'second homes don't contribute to the economy and community enough as they are often empty and don't always pay Council Tax' c) 'lots of second homes are used as holiday lets which bring tourists who spend money'. I'm not going to dare to attempt to reach a conclusion about how people feel with a pie chart to illustrate it, I'm just throwing the issue out for you to consider.
• In case this needs saying, the Isle of Wight is an English county with the same rules about house purchases as the mainland. There aren't any rules that I'm aware of that restrict purchases to mainlanders. The only exception I've spotted has been around ownership of some beach huts which were only available to permanent residents. Those were in Gurnard, but the same rule might apply to other beach huts. 
• If you just use the property yourself, you will need to pay all the usual bills which include Council Tax, TV licence, gas, electric, insurance and so on. You can't claim back the cost of any spending, it's just like running another home. The rules around council tax are a bit complex but I would budget on the basis that you'll be paying the full amount as a second homeowner. This FAQ from Isle of Wight Council covers some discounts and exemptions and suggests that you might get a discount if your holiday home 'has a planning restriction preventing occupation at certain times of the year'. It just says to contact them though, there's no guarantee of a discount. Council tax rates vary depending on where the house is located, but as a rough guide, 2021 figures in Newport range from £1377 for Band A to £4132 for Band H.

• A lot of the homes which are popular with second home owners are apartments in Cowes, Shanklin, Sandown, Ventnor and Ryde, as they often have sea views and are a bit easier to maintain than a freehold property. Most either have a lease of around 99-125 years or a 999 year lease. Of course, a property with only a few years left on its lease will start to lose value. 
• The key question with flats (and some houses) is how much will you pay for the annual ground charges, service charges or maintenance charges - and might they increase? At the lower end you'll find a charge of £500 per year but I've seen some Isle of Wight properties on holiday parks with a £10,000 a year service charge. In this case, I'd say you are basically renting it as well as paying a big chunk at the start. Typical service charge and ground rental figures for a two bedroom flat is more like £1500-4000 a year but it does vary and you'll need to include it in your budget. Some service charges seem to make sense - perhaps there's a swimming pool or gym which needs maintaining. But sometimes it's hard to figure out what the money is for, besides the freehold owner's designer watch collection.
• If you plan to rent the house out as a furnished holiday home with occasional use by yourself then it's a completely different setup for tax as you are now running a business. It needs to be available and rented out for a certain number of days per year and then it's classed as a Furnished Holiday Letting (read the HMRC rules on minimum occupation to count as a FHL). You can then legitimately use it yourself for some other weeks and use the income to pay the bills. However, you'll need to pay a big chunk of your income to a property management company for cleaners, advertising, bookings etc. And you'll need a good one or it'll be an albatross round your next in no time. Of course, if you live on the Isle of Wight you might be able to do most of the legwork yourself but popping across on the ferry every Saturday to change the towels isn't likely to be a good business model. 
• if you want to rent out a holiday home rather than use it yourself, then it affects the type of mortgage you can get. According to GoCompare, 'Holiday home mortgages have a reputation for being difficult to arrange' and they are 'more of a niche product but they are readily available'.
• If you are renting out a Furnished Holiday Let then you will pay business rates instead of Council Tax. However, some people manage to avoid paying both as they get small business rate relief. As you may have guessed, it's a little complicated but the gist of it is that if you own just one Furnished Holiday Home and it's relatively small then you are more likely to get small business rate relief than someone renting out a range of mansions across the Isle of Wight. The HMRC page you'll need to get your head around is this one on Business Rates Relief.
• A Furnished Holiday Letting also allows you claim back some expenses and costs, as you are running a business. This forum post on the HMRC website is a good place to start. Which? reckon that a holiday let can earn 10-14% yield but the article admits that it's more like 6% in Dorset and the South Coast. My back of an envelope calculations of Isle of Wight properties struggle to get near to the 10-14% figures, particularly if you are paying someone to look after it, clean it etc. I'd be interested to hear some real life experience, if anyone fancies leaving a comment.

• Of course, one downside of a Furnished Holiday Letting is that it's a bit like getting a new tenant every week so you can expect stuff to get well used and occasionally damaged.

• As a second home owner, you would qualify for Wightlink's Multilink deal which gives you a good deal on the ferry. See this blog for more on that.
• Finally, don't forget to budget for insurance. The type of home insurance you'll need will vary depending on how the property is used, such as whether it is unoccupied for big chunks of time. Also, check that the property you've got in mind is insurable. Some coastal parts of the Isle of Wight have suffered landslides and road closures over the years due to cracks appearing. 

As I said, this isn't intended to be a checklist for a second home but hopefully it will be of use to someone who is exploring their options.