Static caravan finance is a big deal; with around 80% of buyers opting for a finance plan to fund the purchase of their static caravan holiday home, we decided to put together this article to take you through some of the key areas to consider.
A caravan holiday home is a long term lifestyle investment and as a result it is often preferential to spread the payments over an extended period of time.
As with any finance arrangement it is important to find the right deal for you and you individual circumstances. Remember, your primary concern is to borrow the money at the very best rate. For many it is simply a case of sourcing an unsecured loan that will offer the lowest APR over the complete term.
Typically buyers will borrow £20,000 to £40,000 and can choose from various sources of funding.
Caravan Park Approved Finance Companys - Most park operators will have a preferred finance provider who will offer rates to potential buyers. These specialist lenders, such as Barclays and Black Horse, understand caravans and have products designed specifically for them. They may also have access to lenders that are more receptive to those with poor credit histories, as they have agreements with park operators to cover any defaults. Rates from these providers will usually be competitive with those offered by financial institutions on the high street.
This method of acquiring finance normally offers a fast decision and turnaround, and can be co-ordinated by the on-site caravan park sales team who will be able to quote you monthly payment rates and other information relating to the agreement.
Unsecured Loan - Generally the park sales team are focused on selling caravans and consequently are unconcerned as to the source of their buyer’s funds. Some customers will take finance via a bank or building society that they have dealt with before, in order to obtain preferential rates. Also the rise of online price comparison services have made it much easier to search for the best independent finance deal.
Re-Mortgage / Secured Loans - This source can offer some of the lowest rates available, especially with interest rates currently so low. However, this method of acquiring finance was more prevalent during the property boom years. Recent decreases in the amount of equity available for release from most homes has led to less people using this method. This method also involves more of a risk in the event of a default, as the loan is secured against your property.
Family - More and more people are now choosing to buy with friends and family to spread the cost of purchase and ownership. Multiple buyers can often raise a higher deposit and share monthly repayments. Many younger families also take loans from parents or grandparents that can be interest free!
The cost of borrowing will always be related to your credit rating; the poorer your credit rating the more difficult it will be to obtain finance. Buyers with a low credit rating will also be subjected to higher interest rates. Finance agreement acceptance rates have greatly reduced since the credit crash in 2008, however, 2012 saw a real improvement, especially when finance was sought from specialist lenders.
Deposit Amount - What to borrow
Obviously the larger your deposit the less you need to borrow, lowering your monthly payments as well as the duration of the loan term. This will save you money in the long run. As a rule, borrowing rates will be higher than saving rates – even though both were low as of January 2013, with a base rate of 0.5% - however if you are borrowing over an extended number of years this equation becomes more complex.
We have received survey feedback that suggests that many people are using savings to purchase a holiday home simply because they are disillusioned with the levels of interest they have received over the last 5 years and would rather trade those savings in for a lifestyle benefit.
Spreading payments over a longer duration offers the lure of lower monthly payments but ultimately incurs substantially more interest.
You need to ensure payments are manageable and realistic and that you are insured against major changes in circumstances such as redundancy. Insurance costs are easy to overlook when planning finance arrangements, so be sure to factor them in. Always remember payments are due 12 months of the year regardless of whether the caravan is used or not and are supplemental to running costs such as site fees, gas etc.
If you are subsidising your costs by subletting your caravan, remember to be realistic on the income that you expect to generate. Research average subletting income on your holiday park, and remember that it is often better to err on the side of caution when estimating rental income.
Making The Right Choice
As you have seen, there is a lot to think about. However, it is worth putting the time in and doing the research, as sourcing the right finance option is vital to your ownership experience.
Think clearly about what you need to borrow and the duration of the loan term, researching each option and finding which one is best for you. Ensure that you have considered all costs associated with running you holiday home before you finalise a purchase or agreement.
Many customers choose to seek advice from an independent financial adviser before arranging finance.