Letting out a holiday home can have many financial advantages, not to mention the perks of a second home in the sun. These benefits make this route increasingly popular as an alternative to traditional buy to let.
However, specialist holiday home mortgages are notoriously difficult and complicated to obtain and are much more elusive than their regular counterparts. Many brokers are poorly informed about these kinds of mortgages as they are among the more nuanced of the specialist mortgage.
We at The Lending Channel, however, are highly experienced as a holiday let mortgage broker. Our knowledge of the specialist mortgage market is second to none.
We will make the process of finding a lender simple and easy, allowing you to reap all the benefits of your new holiday home.
There are many reasons why a potential landlord might seek out a holiday home mortgage over a buy-to-let. These include:
Depending on their location, short-term holiday lets can be more profitable than a regular buy-to-let property. Proximity to amenities and beauty spots, such as beaches and landmarks, will boost financial returns considerably and act as a thriving source of rental income (so long as the property is maintained and professionally advertised). Generally speaking, you can charge more money for a short-term let than a fixed tenancy.
In a traditional buy-to-let property, tenants can terminate contracts at any time. Successful holiday letting properties have constant turnover and are therefore less reliant on a single person's (or people's) circumstances, meaning they can often be more financially reliable.
Of course, business for holiday letting is seasonal, and you must consider whether this potential inconsistency is the right option for you. In addition, holiday letting requires more hands-on upkeep than straightforward letting does. Think carefully before securing your holiday home property.
More landlords are now considering holiday letting because of the developing changes in the UK. The government no longer offers tax relief for buy-to-let landlords.
Similarly to limited company mortgages, furnished holiday lets are considered a business by HMRC. This means you can offset your mortgage interest against your profits with no limitation. If you are considered a high-rate taxpayer, this could mean savings of thousands.
Your holiday home will not be occupied all year round. Naturally, this is an attractive element as it frees up the property for your personal use. But note, your property must be available for rental for at least 210 days in the year to qualify as a holiday let; this means that, should you so wish, you'll still have 22 weeks to take advantage of your holiday home yourself.
If you think this is the right choice for you, you will need a specialist short-term holiday let mortgage.
This mortgage is exclusively for landlords wishing to rent a property out on a short-term basis as a business. This differs from a second home mortgage (that you would be acquiring for personal use) and a regular buy-to-let mortgage.
Holiday letting mortgages can be complicated to acquire, as the income generated from your property will fluctuate throughout the year.
There is also no straightforward fixed-term contract, as your visitors will be staying for days rather than months. Therefore, it's more challenging for lenders to determine how much you will afford for repayments on your property.
To evaluate your eligibility, the lender will estimate an income projection figure for your holiday home. They will also take your income into account; this is important as they will need to know you can afford repayments even when the property is empty.
Lenders will also consider the saleability of your holiday home. The most attractive properties to lenders are versatile; should you choose to sell them on, they want to know that the property isn't just limited to being a holiday home.
With a holiday let mortgage, you should be able to borrow between 60% to 75% of the property's value. Lenders generally look for at least 125% returns of the interest payable on the mortgage.
These kinds of mortgages require a more substantial deposit than your standard buy-to-let. This is because the risks are more significant than a long-term rental property.
In terms of deposit, you will typically between 25% and 30%..
Short-term holiday letting mortgages are undeniably more niche than most others. To get the best deal, you must seek advice from a broker with a deep knowledge of the market and a good relationship with lenders. With over a decade of experience in the industry and specialist types of but-to-let and holiday home mortgages, we are committed to making your investment a success.
Call us today for free advice with no obligation.