Buying a Static Caravan: Finance and VAT

Buying a caravan is going to cost you considerable money.  In previous blog posts, we have looked at everything you need to know before buying a caravan outright.  However, in this guide, we are going to consider two specific aspects of financing a static static in further detail.  Buying a static caravan on a pitch is often going to mean that you’ll need a fair amount of capital outright.  However, in many cases, you will be able to spread the cost.

This is referred to as buying on finance, and while we may have already introduced this aspect to you in another post, we want to make sure you know exactly what you’re getting into. What’s more, you must understand how VAT, or value added tax, applies to your static holiday caravan purchase.

Sometimes it is not always possible to buy a caravan outright.  While this is an ideal situation, you need to be ready and prepared if you need flexibility.  Read on and learn more about how to obtain this flexibility while buying.  Remember, too, that nothing is set in stone during the buying process until you are 100% happy with your contractual obligations.

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How Does VAT Apply to Buying a Caravan?

You will be expected to pay VAT within the price of your caravan and pitch at the park you choose to stay with.  You will pay Vat on everything you buy in the UK based on rates set by the government.  Static caravans and pitches are no different, though you can rely on your holiday park to handle that side of things for you.  The vast majority of the time, holiday parks will be registered for VAT.

This means the cost of value added tax will normally be included in your fees.  You will see VAT added to your invoice as an additional cost, but you will not be expected to clear it separate to your final bill.  At the time of publication, VAT is charged at a flat rate of 20%, however, this may change from budget to budget.  VAT changes at the government’s discretion.

Payments which are impacted by VAT include your pitch fees and anything you are likely to clear with the park in terms of business costs.  However, you may find that you can obtain a relief at some level from the cost.  This will tie in with your energy usage, and you will need to discuss matters with your park operator.  Depending on the meters you have in place for your energy, you may be able to pay less VAT.  As always, this is well worth discussing with a solicitor, too, if you are unsure on the terms involved or what may be applicable to you.

What is Static Caravan Financing?

Just as you would pay for a credit card, a mortgage or a loan, you can spread the cost of buying a caravan.  This isn’t unheard of with most holiday parks, meaning that before you buy, operators or staff should give you plenty of options to choose from. 

The benefits of paying for a static on finance are numerous:

• You won’t have to pay for your home or pitch outright in one lump sum.
• Most parks will offer flexible repayment schedules that you can discuss before you sign any contracts.
• All parks offering homes on credit or finance will need to be regulated by the Financial Conduct Authority, or FCA.  This protects your rights and will give you greater confidence when choosing to spread costs.
• Rather than having to save up capital to pay for a static outright, you can set up a holiday lodging right away.  This may differ depending on the park you choose, so do make sure to read any terms and conditions you are offered in the interim.

For many people, caravan financing is the best option available for getting into holiday homeownership.  However, it stands to reason that there are a few aspects you’ll need to keep in mind before negotiating.

What Are the Drawbacks to Buying a Caravan on Finance?

Buying anything on finance, caravans included, can carry plenty of risk.  While all holiday parks overseen by the FCA will be reputable and will ensure to have your best interest at heart, you must make sure that buying a caravan in this manner is suited to your financial profile and income.

Here are just a few reasons why buying a caravan on finance may not be right for you:

• Holiday parks will apply a rate of interest payable.  This means while you are spreading the cost of your caravan and pitch, you will actually pay more in the long run.
• Financing is not a good idea if you have no fixed income.  If you can’t guarantee that you will have money available to pay for your caravan and pitch in the long run, you shouldn’t sign an agreement.
• While you can spread the cost of a caravan and pitch into manageable amounts, you may end up paying it off for a long time.  For example, you may need to pay off a caravan for five or six years at a comfortable rate.
• Entering into a finance agreement means that you are agreeing to a legal, binding contract.  Failure to keep up to these payments may mean legal action is taken against you.

As always, we advise that you read financing contracts with a park operator carefully to make sure that the arrangement is right for you.  If there is anything you don’t understand, or if there is anything you don’t agree with, make sure to consult a solicitor.

What is a Hire Purchase Agreement?

Financing at holiday parks is very different to that which you’d expect elsewhere.  It is not the same as buying a car on finance, or setting up a mortgage, for example.  You may find that the agreement set up for you is a hire purchase agreement when you go to buy your caravan. 

This means that, essentially, you won’t ‘own’ your caravan until it’s been paid off in full.  Up until that time, you are only renting, or hiring your holiday home.  This probably won’t be too much hassle for most people.  However, it may mean that there are specific terms you need to comply with during your ‘hire’ period.  Providing you are happy with the fact you won’t be the full owner of your caravan until your purchase has been completed, you have nothing to worry about.

When you have finished paying your instalments, if you would like to own your caravan, you may be asked to pay an additional fee.  This is non-obligatory.  Therefore, be prepared to clear one final fee with your financier and the park operator before you can take full ownership.

Your Rights

It is also worth remembering that you will have some rights protected under UK law when you buy anything on credit.  Most holiday parks will be working in line with a finance company, a third party, who will handle the repayment side of things. 

If you are concerned that your caravan, pitch or the service you receive is not as expected, or if you experience a problem, you should get in touch with your financiers.  All hire purchase agreements are fully regulated, which means you have plenty of backing.

For example, if your caravan develops a fault or a problem which isn’t through wrongdoing or your own fault, make sure to get in touch with your park operator and/or financier in writing.  You must send written letters to parties requesting action.  You may never need to take such action, however, it is worth remembering that your rights and interests are protected within UK law.  Feel free to exercise them!

Hire Purchase Agreements and Your Credit File

As always, any purchases made on credit are going to rely on your credit score, this includes buying a caravan.  This is a record of payments you have made to companies on credit or through borrowing in the past.  It gives lenders confidence as to whether or not they can expect money back from you when you agree to an arrangement.

It is a good idea to make sure you have a healthy credit score before entering into finance and buying a caravan.  Otherwise, you may find that your request is rejected.  This will have an adverse effect on your credit file.  Do also bear in mind that you should always clear payments with your park on time and in full.  Otherwise, your credit file will take an immediate hit. 

Black marks on your credit file can affect your ability to borrow elsewhere in future.  It is never worth the risk of delaying payments.  Before you enter into a finance agreement, make sure you have the money available to clear funds at each instalment with your operator.

Should You Enter into Static Caravan Finance?

For many people, buying a caravan makes all the difference.  It can be a useful way to ensure that you have access to a holiday home sooner rather than later. It’s particularly useful if you don’t have a lot of money available to buy a caravan and pitch outright.

However, entering into finance can mean that you are tied to a contract for a long period of time.  You must always clear payments when requested, and in full.  Otherwise, you may face legal action, and black marks on your credit file.

Do think carefully about financing your static caravan.  Is it safer or more practical for you to save up the capital?  It may be worth discussing matters with a financial advisor before you sign any documents.

For further advice, see our article on; What to Consider When Buying a Static Caravan Holiday Home