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.
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 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.
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.
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, 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 a number of ways:
There are various ways that lenders in this sector assess landlords' ability to repay the loan i.e. the 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 include 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.
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.
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