What is a
holiday let mortgage?
A holiday let mortgage is a specialized mortgage for buying a property that will be rented out for short periods of time, such as during the summer season or during popular holidays.
If you dream of buying a holiday home that you can also rent out to generate income when you’re not using it, a holiday let mortgage is the right type of mortgage for you.
Holiday let mortgages are different from standard buy-to-let mortgages because holiday rentals are a seasonal business.
Holiday rentals typically generate most of their income during the peak season, and may be largely unoccupied during the off-season. This makes holiday let mortgages riskier for lenders, so the criteria for obtaining a holiday let mortgage is more stringent.
How does a
holiday let mortgage work?
Holiday let mortgages work like any other mortgage, but with a few key differences.
Lenders want to be sure that you can afford to repay the monthly mortgage payments, even in difficult circumstances. When assessing your application, they will consider your income, other financial commitments, and the potential income from the holiday let.
However, lenders are also aware that holiday rentals are a seasonal business. They may require you to have a higher deposit than for a standard buy-to-let mortgage, and they may also require you to have a backup plan in case you don’t have any guests for a period of time.
If you can demonstrate that you can still afford to repay the mortgage even if the property is unoccupied, you will have a better chance of getting your mortgage approved.
What is the
lending criteria for holiday let mortgages?
Holiday let mortgages are a specialized type of mortgage that can be more difficult to obtain than standard buy-to-let mortgages. This is because holiday rentals are a seasonal business, so lenders want to make sure that you can afford to repay the mortgage even if you don’t have any guests for a period of time.
Here are the key lending criteria for holiday let mortgages:
Deposit:
Lenders typically require a deposit of at least 30% of the property’s value, but some may require up to 40%.
Rental income:
Your rental income must be at least 125% to 145% of the interest payable on the mortgage.
Minimum income:
In addition to rental income, you must have a minimum annual income of between £20,000 and £40,000.
Homeownership:
Most lenders require you to already be a homeowner.
How the
lending criteria works:
You’re interested in buying a holiday cottage on the Dorset coast for £250,000. With a 30% deposit, you’ll need a down payment of £75,000. If your mortgage interest rate is 4.5%, you’ll need to generate an annual rental income of at least £11,000 to cover the interest payments.
Holiday let mortgages are becoming more popular, but they are still a niche product.
This means that there may be fewer deals available than for standard buy-to-let mortgages. You may have more options if you already own other properties, such as other holiday lets or buy-to-lets, that you can use as collateral for the loan.
A mortgage broker can help you find the best holiday let mortgage deal for your needs.
They can compare deals from different lenders and help you understand the lending criteria.
the tax
implications of a holiday let?
Investing in a holiday let can have significant tax implications, especially compared to a regular buy-to-let property.
On the plus side, you may be eligible for:
Capital gains tax relief for businesses, such as business asset rollover relief and entrepreneurs’ relief Capital allowances for furniture, equipment, and fixtures Offsetting the full amount of mortgage interest against the rental income when calculating profits however, you also need to be aware of the downside: stamp duty.
In addition to the standard stamp duty land tax (SDLT) charge applied to all property purchases, you will be liable for at least an extra 3% on a second property, and possibly more (the additional stamp duty increases in bands, in line with the property’s value).
Contact.
LET’S TALK.
To discuss how we can help you please contact us using the details below for an initial chat or to arrange an appointment with one of our Advisors in Cornwall.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY DEBT SECURED UPON IT.