Holiday Let Mortgages

Holiday let mortgages are loans specifically designed for individuals or investors looking to purchase properties to rent out as short-term holiday accommodations.

These properties are often in tourist hotspots, coastal regions, or areas with high tourist traffic.

Holiday let properties are not used as primary residences; instead, they’re for short-term rentals to holidaymakers, typically for periods of a couple of nights up to a couple of weeks.

Holiday let mortgage lenders consider projected rental income when assessing affordability, unlike standard mortgages where personal income is the primary factor.

Due to fluctuating tourism and seasonal demand, holiday let mortgages might carry slightly higher risks compared to traditional residential mortgages.

Holiday let mortgage lenders typically require a minimum projected income from holiday rentals to consider the application.

The location’s attractiveness to tourists and potential rental income heavily influences approval.

Also, a higher deposit of 25%+ is required compared to standard mortgages due to the higher risks involved.

A good credit history is essential, although lenders may be more flexible depending on other factors.

Holiday let mortgage lenders might have specific criteria; hence, it’s advisable to research different lenders or seek advice from an experienced mortgage broker.

Interest Rates: Rates for holiday let mortgages can be slightly higher than standard residential mortgages due to perceived higher risk.

Also, mortgage arrangement fees, valuation fees, and early repayment charges might apply. Some lenders also have additional fees for holiday let mortgages. Your mortgage broker will run you through all the fee options with a view to save you both money and time.

Holiday let mortgage lenders evaluate the property’s rental income potential alongside the applicant’s financial situation to determine affordability.

This includes the projected rental income which is based on the property type, location, and seasonal demand. Also, your personal Income will be factored into the assessment to ensure that you can afford the mortgage payment in a period of downtime.

It’s always advisable to work alongside a reputable accountant to ensure you are paying the correct amount of tax with a holiday let property.

There are two main types of tax to consider:

• Income Tax – All rental income is taxable. However, there are allowances and deductions available, such as mortgage interest, maintenance costs, and other expenses related to the holiday let. It’s always best to check the up-to-date rules with your Accountant.
• Capital Gains Tax – Selling a holiday let property might incur capital gains tax, but there are exemptions and reliefs available based on specific criteria.

Holiday let property owners need to handle property management, including cleaning, maintenance, and ensuring a good guest experience. Typically, they will have a few of these properties and use the same services or do it themselves on a regular basis.

Also, the regulation with holiday let properties is detailed. There may be licensing requirements depending on the location.

There is a potential for higher income with a holiday let property, the rental rates for holiday lets can be higher than long-term residential rentals.

There is also an amount of flexibility where owners can use the property themselves for holidays when it’s not rented out. This is limited to several weeks a year so it’s always best to check the latest rules on the HMRC website.

Holiday let mortgages provide a good investment opportunity for landlords, especially in the high-demand tourist areas. Various websites such as Airbnb and booking.com for example are doing well for short term bookings.

Holiday lets are seasonal, and income can fluctuate in the off-peak seasons, when it’s good it’s good, however, the off-peak seasons can seem long when you have a holiday let mortgage to pay every month.

Also, due to the short-term nature the cleaning costs will be high which can impact profits. A typical holiday let landlord will have a couple of properties and do the maintenance and cleans themselves to maximise profits.

When considering doing holiday lets and getting mortgages, it’s always important to see great advice along the way to save you both time and money.

Working with an experienced mortgage broker will ensure that you have the best mortgage deal available to you and that the application process goes smoothly.

Also, a reputable accountant will be able to keep you up to date with the latest tax changes and can prepare your accounts.