Holiday Let Mortgage
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Holiday Let Mortgages - How do they work?
Running a holiday let can be a good way to generate additional income, but you will need a special type of mortgage. We explore how holiday let mortgages work and what you need to consider.
Can I buy a holiday let using a normal mortgage?
You need a special type of mortgage for a holiday let, even if you intend to live there yourself for part of the year. Letting your home is a breach of a normal residential mortgage, so you will need to find a specialist holiday let mortgage product. The reason is that lenders believe that letting your home out to the public is more risky than living in it yourself.
You can choose from two kinds of holiday let mortgage, depending on whether you will live in the property and let it for a couple of weeks a year, or your holiday home is let to clients most of the time. You can choose from fixed rate and variable rate deals as with a standard mortgage product.
Can I use a Buy to Let mortgage for a holiday let?
A standard Buy to Let mortgage is unsuitable for buying a holiday home. Buy to Let products require you to let the property to tenants on an assured shorthold tenancy. These long-term agreements are different from short-term holiday rentals.
Fewer lenders offer holiday let mortgages because of the fluctuation in rental income. You can make a very good income in high season, but it is usually much lower in the winter. As a result holiday let mortgages tend to have higher interest rates and fees than Buy to Let.
Are there interest-only holiday let mortgages?
Taking out an interest-only holiday let mortgage will mean you make more profit. You only need to cover the mortgage interest payments each month, so the cost is lower.
At the end of the term, however, you will need to repay the loan in full so, as part of the application process, the lender will ask you to demonstrate how you will raise the funds through investments or other financial plans.
What if I already have a mortgage on my home?
If you currently have a residential mortgage but are planning to offer the property up as furnished holiday accommodation, you will need to switch your mortgage to a holiday let product. If your current mortgage deal has an early repayment charge, it may be worth waiting until the end of your term before making the change.
How much deposit do I need for a holiday let?
Holiday lets and Buy to Let property require larger deposits than a standard mortgage. Most lenders limit borrowing to 75% LTV (Loan to Value) which means you will need a 25% deposit.
How much can I borrow with a holiday let mortgage?
If you are only letting your property for a few weeks a year, you’ll need a residential mortgage with special allowances for short term letting. This type of mortgage is based on your personal income – and you can usually borrow around 4-5 times your salary.
For a full holiday let mortgage, lenders calculate the borrowing limit based on the potential income from the property. The lender will want evidence from a lettings specialist on the relevant rental rates you could achieve.
Does the holiday let need to be furnished for a mortgage?
There are tax advantages to holiday lets as opposed to traditional Buy to Let. To qualify for these, your holiday let property must be furnished, available for letting for 210 days a year, and actually let for at least 105 days.
How can The Mortgage Mum help?
The Mortgage Mum is a team of expert mortgage brokers, here to help you explore all the options in potentially running a holiday let business.
We will compare mortgages from specialist lenders, looking at rates, fees and criteria to recommend the most suitable products.
We can also put you in touch with accountants and tax experts to help you decide whether to set up your business as a Sole Trader or a Limited Company. For an initial consultation about your holiday let plans, get in touch.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH THE REPAYMENTS ON YOUR MORTGAGE.