Let the holiday planning begin - A guide to Holiday Let Mortgages

Have you ever dreamt of running your own B&B? Perhaps you’ve spotted a run-down property in an idyllic location, and you can see the potential for a successful holiday let. Staycations and mini breaks are increasingly popular amongst individuals, couples, and families throughout the UK. Many people want to enjoy a seamless getaway without the stress of travelling abroad. In today’s ever-changing market, it’s easy to see the appeal of short-term holiday lets as a solution to property investment.

A holiday let mortgage is a special type of mortgage specifically for properties earmarked for holiday purposes.

Let’s find out more about the intricacies surrounding holiday let mortgages.

What are the benefits of investing in holiday lets?

Many property investors see holiday lets as a potential growth market. The popularity of brands such as Airbnb means that many people are looking closely at the short-term rental market as an alternative to traditional buy-to-let properties. If your desired property is in a popular tourist hotspot, then short-term holiday lets can provide an effective return on your investment.

But to get started, you need to find a mortgage lender who specialises in holiday let mortgages. This is considered a high-risk lending scenario, as you could find that your holiday property remains unoccupied in low months. Therefore, your mortgage lender will need to feel confident in your business plan and see your holiday let rental market projections. The lender will need to feel confident that you can repay your capital throughout the year, not just during the seasonal months.

Our Mortgagemove advisors work closely with niche lenders across the UK. If you are considering taking out a holiday-let mortgage, we can work with you to identify what information you need to collate as part of your application. From there, we can find the most appropriate holiday let mortgage lenders for you and help you on your way.

To speak to a holiday let mortgage specialist, please phone our freephone advice line on 0333 005 0333.

Is a holiday let mortgage different from a buy-to-let mortgage?

You may wonder how a holiday let mortgage differs from a buy-to-let mortgage.

After all, both are mortgages aimed towards the rental sector.

But buy-to-let mortgages are aimed at secure, long-term tenancies where your property is occupied the bulk of the time. With contracts in place, you can have secure rental income that covers your mortgage repayments.

In contrast, holiday let mortgages are a riskier investment.

They focus on short-term occupation, often just several days or weeks at a time. Holiday lets are seasonal businesses. Depending on your location, you may find that your property is extremely popular at certain times of the year. They may lay dormant the rest of the time. This means that lenders are often concerned about how you plan to make capital repayments when you have minimal rental income.

Therefore, as a key part of your holiday let mortgage application, you will need to demonstrate a solid business plan identifying any projected holiday let income. You will need to show how you plan to make repayments during the quieter seasons. Mortgage lenders will want to see as much information as possible, so you will need to have contingency plans in place to ensure the affordability of your holiday let mortgage.

What are the lending criteria for many holiday let mortgages?

Each mortgage lender will have its own criteria.

Our Mortgagemove advisors will discuss the specifics with you based upon your chosen lender. But in general, you can expect that holiday let mortgage lenders have strict lending criteria.

  • Typically, you will need to be a homeowner
  • Your projected net rental income should exceed a minimum of 125% of the payable interest on the mortgage.
  • You may need to show that you have accessible cash savings

If you intend to list your holiday accommodation on sites such as Airbnb, you need to pay careful attention to any covenants attached to the property that you wish to buy. Your conveyancing solicitor should be able to confirm if there are any specific regulations relating to short-term holiday lettings.

How much deposit do you need for a holiday let mortgage?

As the risk is higher, many mortgage lenders will want to reduce their liability by requesting larger deposits. Typically, holiday let mortgages require deposits of between 30-40% of the property purchase price.

Are there any tax implications of taking out a holiday-let mortgage?

As you need to be an existing property owner to benefit from holiday let mortgages, you will need to pay higher levels of stamp duty. Typically, second properties incur an additional 3% fee, but this will depend on the value of your chosen holiday let property.

Before diving into any mortgage application, we recommend that you speak with a qualified financial advisor.

There are many tax implications for taking out a holiday-let mortgage, specifically regarding capital gains tax and other allowances. In addition, holiday lets will require you to complete a self-assessment tax return. They will also be considered part of your estate when it comes to Inheritance Tax. Therefore, you must carefully check all of the details and consider this due diligence part of your wider business plan.

You will also need to consider what insurance policies you may need to protect your property investment.

Our holiday let mortgage specialists are here to help

At Mortgagemove, our team is experienced in all areas of mortgage lending. If you are considering applying for a holiday let mortgage, please speak to one of our advisors. Not only can we find the most suitable lending solution for your needs, but we can help you to identify what information you may need to submit as part of your application.

We can assess your finances, check your affordability, and help you to understand how you can identify your potential profit margins. So, whether you are a first-time property investor or an experienced investor, we are here to help.

To find out how we can help you kickstart your dream of running your own holiday let, please speak to a member of our team. We can turn your dreams into reality in just a short phone call to our freephone mortgage helpline on 0333 005 0333. Alternatively, text ADVICE to 82228.



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