Holiday Buy to Let Mortgage: what you need to know!

Thinking about a Holiday Buy to Let?

The growth in popularity of UK staycations has created a buoyant market for those landlords looking to generate income from a holiday home. Specialist lender Hodge reported a 173% increase in holiday let mortgage applications in 2021 compared to 2020. And, according to research by Moneyfacts, the number of buy-to-let mortgages for holiday homes has increased by 25% since September 2021, with rates becoming more competitive as a result.

Despite this, the buy-to-holiday let mortgage market is still relatively niche, with products predominantly available from regional building societies and specialist lenders. It also differs from a traditional buy-to-let when it comes to legal, tax and mortgage finance considerations. Here we ask some key questions to help you decide whether becoming a holiday buy-to-let landlord is the right choice.

What is a holiday buy-to-let property?

Firstly, it’s not just a second home. It’s a property bought with the intention of renting it out to holidaymakers for a certain amount of time each year. To qualify for business rates relief it must meet the following criteria:

• The property must be furnished and available as a holiday let for a minimum of 140 days a year.
• The property must be let for at least 70 days a year.
• The maximum length of a single holiday stay can be no more than 31 days.

Are there any tax benefits?

The main advantage is that as a landlord of a furnished holiday buy-to-let, you can still deduct mortgage interest payments from your rental income before paying tax. In contrast, a landlord of a traditional buy-to-let no longer benefits from any mortgage interest relief.

Do I need specialist insurance?

Yes. Standard home insurance will not provide adequate cover for a holiday let property. Instead, you’ll need host insurance specifically designed for short-term letting, available from specialist insurers such as Pikl.

What are buy-to-holiday let mortgages?

As a landlord of a holiday home business, you will need a specialist buy-to-holiday let mortgage. Unlike a traditional buy-to-let where income will be guaranteed for the term of an assured short-hold tenancy, the occupation of a holiday home will constantly fluctuate. As a holiday buy-to-let property can be vacant for periods of time, the risk to the lender increases. As well as uncertain income, maintenance and repairs may go undetected, heating and water can break down and security won’t be as robust.

This increased risk is reflected in many ways:

• The loan amount offered by a is based on an income projection figure rather than a simple multiple of potential rental income.
• You must provide detailed information about your holiday buy-to-let, such as usage, periods of occupancy, rental charged, nights of rental, as well as your existing income and outgoings.
• The deposit needed is typically higher at 25%-30%, although higher loan-to-value products are entering the market each day.
• Interest rates also tend to be higher with buy-to-let mortgages for holiday homes (however, don’t forget you will be able to offset your mortgage interest payments against your rental income).
• The cost of a holiday let mortgage will vary depending on factors such as the size and location of the property, accessibility (foot, road and rail) and overall condition.

There are various ways that lenders in this sector assess landlords' ability to repay the loan i.e. affordability, and some, although not all, will take into account rental income from the property. First-time landlords can also be considered.

There are also alternative ways to finance the purchase of a holiday let property including buying it outright, re-mortgaging your own home to release equity, extending your mortgage into retirement, or, if you already have most of the capital, taking out a personal loan to secure the rest.

Where can I find the right mortgage?

The best option is to speak to an independent mortgage broker who can give you tailored advice to fit your needs. At Vincent Burch Mortgage Services we combine extensive experience with easy access to buy to holiday let mortgage lenders and a determination to find the right finance deal for our customers.

Let us help to make your holiday let dream a reality.

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