By Roshan L. D’Silva · Smart Buy
Most people arrive at this question as a binary: cash or mortgage. It is the wrong frame, and it quietly rules out three structures that suit a holiday-home buyer better than either.
Before the routes, the question underneath all of them. What services this property in a year when your income stops? Not whether you can afford it today — whether it survives a bad year. Every structure below is really an answer to that.
Route one: buy outright
The simplest and, for a holiday home specifically, more defensible than it looks. A second home is a discretionary asset that costs money every month whether or not you visit. Debt against a discretionary asset is what turns a soft patch into a forced sale, and forced sales of holiday homes are rarely well timed — the whole market tends to soften at once.
The argument against is opportunity cost, and it is a real one. Capital in a villa is capital not compounding elsewhere. But run the comparison honestly: against the return you would actually have achieved, net of tax, not the one the index made.
If you buy outright, keep a separate reserve for running costs. Owners who put every last unit of currency into the purchase and nothing into the float are the ones who cannot fix the roof in year four.
Route two: a non-resident mortgage
Available in more markets than people expect, on worse terms than they hope.
The pattern across most lenders: a larger deposit than a resident would need, a higher rate, a shorter term, and a documentation burden that assumes you are unusual. Many will lend only on property in their own country, to residents of a specific list of others.
Our guide to HSBC and the other international lenders sets out what one major bank actually publishes: for UK property, a minimum basic income of £75,000 and a maximum 75% loan-to-value for a residential purchase, and residency in one of just fourteen approved countries. No EU state is on that list. That is not a quirk of one bank — it is the shape of the market.
Two things worth building into your plan from the start:
- Currency. If you earn in one currency and the mortgage is in another, you have taken a foreign-exchange position whether or not you meant to. A 15% move against you is an ordinary event over a mortgage's life, and it lands on the payment, not on paper.
- Arrangement costs. Valuation, legal, lender fees and sometimes a mandatory local account or insurance policy. Budget for them as part of the deposit, because they are payable before completion.
Route three: buy modestly now, with land to build on later
Underused, and often the best fit for a buyer whose family will grow into the property.
You buy a smaller building than you eventually want, on a plot with room and — critically — with permission that can plausibly be extended. You use it while you save. You build the rest when you have both the money and, more valuably, several years of knowing how you actually use the place.
People who extend after five years of ownership build something quite different from what they would have built on day one. They know where the sun lands in February, which room everyone actually sits in, and how many people really come.
The risk is entirely about permission. Buying land on the assumption you will be allowed to build on it is one of the most expensive mistakes available in this market. Establish what is permitted — in writing, from the authority that grants it, before exchange — and treat any agent's confidence about what “should be fine” as marketing. The due-diligence article in this series covers how.
Route four: buy something that earns
A working farm, an estate with coffee, olives, grapes or fruit, a property with a cottage that lets independently. The appeal is obvious: the asset contributes to its own upkeep.
Be clear-eyed about what you are taking on. An agricultural holding is a business with weather risk, labour needs, commodity prices and a season that does not pause because you are elsewhere. It usually requires someone competent on the ground year-round, which is a hiring problem before it is a farming one. In several countries agricultural land also carries ownership restrictions that residential property does not — India, Morocco and Georgia among them, and that list is not exhaustive.
Where it works, it works well: the income is real, the property is worked rather than shuttered, and there is someone there. Where it fails, it fails because the buyer wanted a holiday and bought a job.
Route five: the lock-up-and-leave apartment
The least romantic option and, for a genuine non-resident owner, frequently the most sensible.
A well-run apartment building solves the problems that make distant ownership wearing. Someone else maintains the structure, the grounds and the pool. There is a concierge or manager who notices a leak. It is secure while empty, which a villa down a lane is not. Service charges are a known annual number rather than an unpredictable series of repairs.
You are trading space, privacy and land for the ability to close the door and fly home without arranging anything. If you will visit three or four times a year from a long way away, that trade is usually correct, and a great many buyers who bought the villa wish they had made it.
The diligence shifts to the building rather than the unit: the reserve fund, the arrears rate among owners, what the service charge has done over five years, and whether short lets are permitted — because in many buildings they are not.
Then decide what services it
Two answers, and they lead to different properties.
Funded from your profession. The property is a consumption asset you happen to own. Buy what you want where you want it. The test is simply whether the annual cost is comfortable against income you already have.
Funded from letting it. Then it is a business, and it should be bought like one: on season length, achievable occupancy, the local letting rules, and whether competent management exists in that market. It also means accepting that the weeks you most want to use it are the weeks it earns most.
The buyers who struggle are the ones who never decided. They bought emotionally, assumed the letting would cover it, and discovered that in their market the season is eleven weeks long. As we noted in the first article in this series, 56% of owners in one survey bought intending to let — and 59% never have.
A note on what to model
Whichever route you take, model three numbers rather than one: the purchase price, the acquisition costs on top (transfer tax, legal, agency, registration — commonly several per cent, and in some markets approaching ten), and the annual cost of simply owning it.
The third is the one that decides whether you still enjoy the house in year seven, and it is the one almost nobody writes down before they buy. We cover it properly later in this series.
Nothing here is financial advice, and we take no commission from any lender or agent. Confirm every figure against your own market and your own circumstances before you commit to anything.