Holiday Let Mortgages FAQS

The continued rise of Airbnb and similar short-term rental sites is encouraging landlords to diversify into holiday lets, as the returns can be considerably higher than traditional buy-to-lets.

In addition, many investors are creating short-term serviced accommodation blocks from refurbished commercial buildings to satisfy demand from a professional worker audience that prefers the home comforts to that of a hotel.

But how do you finance these properties, how much can you borrow and will your existing buy-to-let lender allow you to switch income model?

Here are the answers to the some of the most frequently asked Holiday Let questions.

1. What is the difference between a holiday let mortgage and a buy to let mortgage?
The difference between these two types of non-residential mortgage is typically around the length of tenancy agreements for the property. Traditional buy to let properties are usually let for a minimum of six months, while holiday lets are typically let for much shorter periods – sometimes only one night.

2. Who can borrow to purchase a holiday let property?

Subject to the lenders criteria, there are a number of ways to purchase or refinance for a Holiday Let property.

These entities include:

  • SPV (special purpose vehicle) companies
  • Individuals
  • Trading Ltd companies
  • Partnerships
  • Trusts
  • Overseas entities

3. Do I need planning permission to make a property into a holiday let?

If you already own a buy to let or residential property that you’re planning to use as a holiday let, you won’t need any planning permission, so long as no structural changes are necessary. However, you must ensure that you have the correct mortgage for this type of rental property and that the property has no covenants restricting its use, this needs to be check through your solicitor or planning consultant.

3. Will I need to re-mortgage to turn my buy to let into a holiday let?

The easiest answer is probably! Most buy to let mortgage contracts require properties to be let on Assured Shorthold Tenancy (AST) agreements. ASTs typically are fixed terms of between six months to three years, which means that lets for shorter periods are not permitted.

Also as holiday properties have a much higher turnover of ‘tenants’, this risk must be accounted for in the mortgage, hence lenders offer separate mortgages for holiday let properties. Although borrowers can go directly to a few lenders, in order to get access to the entire holiday let mortgage market you will need to use a specialist broker

4. Can I stay in my holiday let?

Yes! The holiday let regulations state that the property must be available for let for a minimum of 210 days a year to be eligible for holiday let status. Outside of this, as the landlord, you can use the property for yourself for upto 90 days per year typically, subject to your mortgage T&Cs.

What are typical interest rates for holiday let mortgages?

Holiday home mortgages are more expensive than regular buy-to-let deals, although you may be able to save on tax by deducting your mortgage interest, expenses, running costs from your profits, depending on the type of entity you own the property in. However, you need to consult with your accountant to understand what exactly is permitted.

You’ll find both fixed and discounted variable rate deals, usually over a 2- or 5-year initial period. Rates range from around 4% to 9%. The lower the maximum LTV allowed, the lower the interest rate is and fixed rates usually cost more than discounted rates, but they give you certainty about how much your payments will be each month.

A specialist broker can source you the most competitive deal for your criteria.

 

How much can I borrow for a holiday let mortgage?

The majority of holiday let mortgage lenders calculate affordability based on a standard AST rent (the same as a normal buy to let). However, some lenders will calculate the amount you can borrow based on average revenue – at high, medium and low season prices-earned from 30 weeks full occupancy of the property per annum. They then typically multiply that figure by 125% and then by 5.5%. This gives you the amount that you could potentially borrow up to 75% (sometimes 80%)loan to value of the bricks and mortar valuation  of the property

  1. How can I get a larger loan for a holiday let?
    If you are looking to borrow a larger amount to finance a holiday let, it may be worth using a limited company to do so. Before considering this option we encourage you to take specialist tax advice first and speak to an accountant. Lots of our clients own properties in a limited company, and pay corporation tax on the profits of the company, rather than paying income tax, if they do not draw dividends out of this company, as a personal owner of a holiday rental property would.11.What other fees are payable on a holiday let mortgage?

There are typically arrangement fees from the lender and broker’s fees if you use a broker, but this route can save on the cost of borrowing. You may also have to pay your lender’s legal fees and surveyor or valuation fees.

  1. What other type of costs are involved with owning a holiday let property?
    There are a number of additional costs associated with holiday lets compared to buy to let properties. Firstly, unlike a traditional AST, landlords need to attract a number of potential tenants or guests. This takes time so the first cost is the lack of income – potentially for up to six months. Other costs associated with holiday let properties are advertising and listing fees, management fees, if you are using a recognised agency to manage the property along with cleaning cost. But you must also have appropriate buildings insurance in place and – with so many short-term tenants there is often more maintenance and repair costs annually.

 

Anything Else I need to know?
As a landlord, you will need to let the property fully-furnished, so will have to allow for a budget to cover these costs.
If you are using Airbnb or a short-term letting agent to manage your property and generate your bookings they will take a considerable fee from your booking revenue and a management fee.

Find your holiday let mortgage

Are you looking to source a mortgage for your holiday home? Head over to our easy-to-use buy to let mortgage calculator to compare rates or get in touch with one of our expert holiday let mortgage brokers who will be able to advise you on the best available deals.

Potential change of Property classification

Once the new government take power, it is likely that Holiday lets will be changed to C5 and this will have to be applied for through Land Registry, which could mean council tax is applicable and other cost deductions wont be allowable anymore. This will be more work for your solicitor, accountant and potentially a planning consultant. While this is not certain, we advise you take advice on this now if you own or thinking of buying a holiday let. We can help give you certain information but in the main this needs to be through the correct professionals.

 

 

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