What is a Holiday Let Mortgage?
A holiday let mortgage is a specific type of buy to let mortgage which allows you to let out the property as a holiday let to paying guests.
For this type of mortgage, you cannot let out the home to somebody on a long term basis. Your property must be available as holiday accommodation for at least 210 days a year and be advertised as furnished accommodation. Furthermore, the property must be let for 105 days a year.
Even if you let the property for the majority of the year, you’d still have the option of enjoying short visits there yourself.
How Do Holiday Let Mortgages Work?
A mortgage lender will assess a holiday let application differently to a traditional mortgage. The income will be calculated via an assessment of the expected rental income at high, medium, and low season. The average 12 month figure will be used when calculating the affordabilty.
Is it Hard to Get a Holiday Let Mortgage?
There is a smaller pool of lenders that offer holiday let mortgages, and you will have to provide more documentation to secure a mortgage.
In most cases you need to already own a property and, in some cases, have experience as a landlord. There are some lenders offering holiday let mortgages to first time landlords, but in this scenario we would advice speaking with a mortgage broker.
Most lenders will expect the property location to be in a popular tourist location in the UK such as Devon, Cornwall, The Lake District, major cities, coastal towns, etc.
If you are a portfolio landlord, you will find only specific mortgage lenders will be able to assist.
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Contact us today for expert advice and guidance on your unique mortgage and property needs. We will work with you on a one-on-one to basis to help you find the right solution for your needs.
With our experience you can rest assured that you are in good hands when it comes to securing the financing you need for your property.
How Does a Lender Assess Holiday Let Income?
Mortgage lenders consider the projected rental income and will apply this to their stressed income coverage ratio test (SICR). All lenders calculate this differently and it also depends on the type of product you are considering.
Mortgage lenders can assess holiday let income in two separate ways. Some lenders will assess the income via a rental assessment of high, medium and low season expected rental income. In most scenarios they will want this from an ARLA approved letting agent, or if you have let it for a year or two on this basis, they could ask for your figures.
Other lenders will assess the rental based on a standard assured shorthold tenancy agreement, despite the fact you let the property as a holiday let.
Depending on you specific scenario it could be better for you to apply with a lender using a an average of the season, as the income generated this way should be higher and therefore it can mean your can borrow more as a result. Therefore, you need to make sure you find the right lender that fits your objective.
Do I Need a Minimum Income For a Holiday Let Mortgage?
Most lenders require a minimum income of £25,000 per annum. There are some lenders that require a higher minimum income than this and there is currently one that has no minimum income, however the higher your income, the more options you have.
Furnished Holiday Let Mortgage
If you run your holiday let in a specific way it can be classed as a Furnished Holiday Let.
This will mean that your furnished holiday let is classed as a business and property expenses are fully deductible from income. This can be far more profitable than personally owned buy to lets as you can deduct mortgage payments.
To qualify the property should be available for letting as a furnished holiday accommodation for at least 210 days per year. The property must be let commercially as furnished holiday accommodation to paying guests for at least 105 days in the year.
We would suggest you obtain specific tax advice in this area.
Holiday Let Mortgages for Limited Companies
There are lenders that offer holiday let mortgages to limited companies. Product fees can be higher for limited companies, but mortgage rates will be similar to purchasing the property in your personal name.
Purchasing through a limited company can be useful for tax liabilties, but we would always suggest speaking with a qualified tax specialist.
What Deposit Do I Need?
The majority of holiday let mortgage lenders will require a 25% deposit. If you are buying a new build property this could be lower. Some lenders may lend up to 80%.
What Documents Will I Need?
The mortgage lender will carry out an assessment on you to ensure they are happy to lend to you. Lenders will want to know you can afford the monthly payment and the rental income is can cover this. .
Lenders will often request the following documents:
- Proof of Identification
- Income Verification
- Address Verification
- Bank statements (personal or business)
- Evidence of the potential rental income carried out by an ARLA-qualified letting agent.
Mortgage lenders may ask for further documentation, however the above list is the most common documents which will be required.
Can I Use the Property at Certain Times of the Year?
Yes most mortgage lenders will allow you to reside in the property at certain times of the year. The amount of time is in the terms and conditions but can vary from 60-90 days as standard.
How Can a Mortgage Broker Help?
Holiday let mortgages can be complex and you’ll need a careful approach when applying. For this reason, we’d highly recommend having an advisor on board. Our specialists can find you a suitable lender and help you secure a mortgage in no time at all.
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