Holiday Let Mortgages
Helping you buy the house or holiday
home you really want.
Holiday Let Mortgages
If you have ever dreamed about owning another home, perhaps a coastal property or a heritage house in a historic town, then you may need to explore your options regarding a second mortgage.
Whether the purpose of this purchase is for sheer enjoyment or an investment, the good news is that you can realise your dream with a holiday let mortgage. Not only this but there are tax benefits and you can boost your income as well.
What is a holiday let mortgage?
This is a mortgage that has been specifically designed for individuals that want to borrow the money to purchase a property that has the purpose of being let out to people on a short-term basis, like tourists or holidaymakers.
This is not the same as a holiday home mortgage. A holiday home mortgage is designed for people that are looking to buy a second property for their use only, and not for the purpose of making a profit through the rental market.
It also differs from a buy-to-let mortgage. A buy-to-let mortgage is designed for people who intend to buy a property for the purpose of renting it out, however, this is on a long-term basis.
Understanding the difference between holiday let mortgages and buy-to-let mortgages
There is no denying that buy-to-let properties have been popular for many years now as an investment. However, a lot of people are now viewing holiday lets as an alternative, attractive investment.
Holiday lets are attractive as they can often be rented out for much more money when compared with traditional rental properties. This allows owners to generate a much bigger income if you are able to let it out on a regular basis.
HMRC also views furnished holiday lets differently to buy to lets. You are able to claim tax relief on mortgage interest because holiday lets are classed as a business. With buy-to-let properties, this relief is being reduced.
In order for a property to be deemed a holiday let, instead of a buy-to-let, it needs to be available for people to let as furnished accommodation for a minimum of 210 days within a calendar year. This also means that 22 weeks of the year are left for you to enjoy the property if you choose to.
Securing a holiday let with the right mortgage
In order to purchase a holiday property, a specialist mortgage is going to be required. Traditional residential mortgages are not suitable for such a venture, as they do not let you rent out your property. Moreover, a typical buy-to-let mortgage is probably not suitable. You’ll need a mortgage that has been designed with a holiday let in mind.
The issue with a buy-to-let mortgage is that the lender is going to look at the yearly rental figure based on the assumption that the property is going to be let for between six and 12 months on an assured shorthold tenancy. This is how a lender might work out your affordability. This does not work well when you’re intending to purchase the property as a holiday let, as you’re probably going to be renting out the property on a daily basis, rather than a monthly one.
If you go for a specialist holiday let mortgage, a lender is likely to loan you an amount that is based on an income projection figure, as opposed to a simple multiple of your possible rental income. The lender needs to know that you are going to be able to cover the mortgage when the property is unoccupied, and so your earnings will also be taken into account as well.
There area number of other factors that will impact your eligibility, which is something our experienced team will help you with. The type of property you purchase will also impact your ability to secure a holiday let mortgage. This is important because the lender wants to be sure that you could easily sell the property if required. It is much harder to get a mortgage on a property that is limited to purely being a vacation home, such as a holiday park home.
How much can I borrow?
Unlike a standard residential mortgage, but similar to a buy to let, you are going to need a minimum of a 25% deposit in order to apply for this sort of mortgage. The reason a bigger deposit is required is because there is a higher risk to lenders when compared with standard mortgages for buying a residential property.
Once you have accumulated 25% deposit required, the lender is then going to take a look at whether the property is going to be able to generate a rental income of between 145% and 125% of the interest that you would need to pay on the mortgage.
For example, let’s say you were to buy a holiday property that was valued at £500,000, you would need to accumulate a minimum of £150,000 for the deposit. The lender would then want to make sure that you were able to generate a minimum of £11,000 per annum if you were to have a mortgage interest rate of around 4.5 per cent.
The tax benefits that are associated with a holiday let mortgage
The way the HMRC views this type of mortgage makes it an even more attractive investment opportunity. For example, a furnished holiday let is deemed a business, which means all expenses from your rental income can be deducted before you are assessed for tax.
This includes any interest that is being paid on your mortgage. This is not the case for a buy-to-let mortgage, as the tax process here is changing. It is becoming less favourable for additional-rate and higher-rate taxpayers.
How we can help
At this moment in time there is only a small handful of Holiday Let lenders.
Because of this, a lot of advisers seem to try and use Buy-to-Let mortgage products but that simply can’t be done. We’ve heard too many tales of people losing out on properties because they’ve been advised to sort a Buy-to-Let mortgage rather than a Holiday Let mortgage.
We specialise in holiday Let mortgages, and have the experience and lender relationships to be able to help you. Get in touch today to discuss.
If you’re a first time homebuyer,
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Helping you buy the holiday
home you really want.
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There will be a fee for the advice given, the exact amount will depend upon your circumstances but we estimate it we be £250 for residential cases.
Specialist, complex and sub-prime cases may attract a higher fee which will be typically no more than £495. Equity release cases will command a £695 fee.
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