Financing serviced accommodation and holiday lets: 3 top tips

The returns on holiday lets and serviced accommodation can be great and add value to your portfolio - but does your mortgage allow you to do this? Mortgage Director Vincent Burch explains...

If you’re considering buying a holiday let or serviced apartment, pay extra attention to the mortgages available - it’s much trickier to finance these types of properties. With domestic breaks in the UK predicted to see a massive surge due to COVID-19, now has never been a better time to consider holiday lets.

The rate you will get on a mortgage for this type of property will be higher than a typical residential let. However, while the rate may be higher, ultimately you are likely to make more money from serviced accommodation, or an HMO, than a straight-forward let. If that doesn’t appear to be the case after you’ve worked out the rental yield, then don’t do it!

1) Don’t try and keep it quiet and opt for a standard buy-to-let (BTL) mortgage.

If you don’t tell the lender you’re using finance for a holiday let and they find out, then they’re going to want the money back and you’re in the bad books – it is a type of fraud after all. The lender will also share that information on a database which will make it difficult to obtain finance in future.

2) Do changes in BTL taxes apply to holiday lets?

Serviced accommodation is an area we’ve been getting more and more enquiries about, which is due in part to the BTL tax relief changes. While mortgage cost cannot be offset for a buy-to-let, it still can for a holiday let as the property isn’t classed as a residential let. However, to be classed a holiday let, the property has to be deemed as in a desirable holiday location. It’s best to confirm with your property tax adviser that the mortgage cost can be offset.

3) What will lenders consider when financing a holiday let?

Trading experience is a major factor that lenders will take into account. Non-commercial lenders don’t tend to like serviced accommodation because once a property is filled for less than a six-month contract, it basically becomes a hotel - and therefore a business. A commercial lender would assess whether there is a demand in the area and if you have three years’ worth of turnover to show them. If you can’t provide those two things, you’re unlikely to get a mortgage on a holiday let. However, there are lenders to finance serviced accommodation and holiday lets, just not many.

Is there a block of apartments or houses you want to invest in as serviced accommodation?

Get in touch and we can advise on the best finance options for your project. Call 01603 340644 or email us at: [email protected]