If you’re familiar with how an Airbnb property works then you may have looked into owning one yourself.
Originally, Airbnb was about utilising a spare room, or even a sofa! Renting out part of your house, for just a few days, and earning some extra money on the side.
Now it’s a whole industry, with property investors setting up Airbnb accommodation where the entire property is let out, and making good money from it.
This guide takes a look at how a holiday cottage could be used for short-term airbnb style lets and the criteria needed to raise a mortgage to buy one.
What is a holiday cottage?
For a property investor, a holiday cottage will be a self-contained house that can be let out to paying guests and holidaymakers for short term lets. It could actually be a detached cottage in the English countryside or a terraced cottage on the south coast.
It is a place that couples and families can go for self-catering holidays and weekend breaks.
The property must have its own entrance and be fully furnished and equipped for short breaks.
The more amenities you have, should allow you to attract more people and charge higher rates. This obviously comes with a higher capital outlay.
These could include:
- off street parking
- private garden
- balcony or terrace
- BBQ area
- nice views
- swimming pool
- hot tub
At the very minimum you need to offer your guests a warm and comfortable holiday cottage, that they can stay in and enjoy for holidays.
What is a holiday cottage mortgage?
When you are looking at buying a property that will be let out as a holiday cottage you need the right kind of finance.
A standard residential mortgage is designed for use on your own home only.
This property will be occupied by you and your family, with maintenance and upgrades taking place over time. Importantly, as it is only being used by your family, the likelihood of deliberate damage, theft or burglary is reduced.
While you will want to keep your holiday cottage looking its best, there will be times during the year where it stands empty. This is an added risk for lenders and so not all of them will be interested.
Additionally, many different types of people will stay in the cottage over the course of the year. Not all of them will be as considerate or careful with your property as you would like.
The solution is a holiday cottage mortgage.
Also known as a holiday let mortgage, these have quite a few differences when compared to a buy to let.
Available options
As with all mortgages, there are certain choices and options you have when applying:
INTEREST RATES
Lender’s will differ in their specific offers but you should have a choice of fixed interest rates, variable interest rates and possibly tracker rates.
REPAYMENT METHOD
Holiday cottage mortgages are available as interest-only or repayment (capital and interest).
How do you repay an interest only mortgage?
TERM
The mortgage term will very much depend on your age now. Terms of up to 40 years are offered by some lenders, with a maximum age of 85-95.
Income requirements
Lenders will usually specify a minimum income requirement. The minimum income will vary depending on the lender; but it is generally around £25,000pa.
Importantly, this must be earned income from a job or profession.
Applicants can be employed or self-employed but need to be able to prove their annual earnings.
TOP SLICING
Top slicing is typically used for holiday cottage mortgages and buy to let mortgages. The lender may offer the customer a higher loan amount by using some excess personal income in the calculation.
This is very useful where the maximum mortgage offered falls short of what you really need.
How much deposit is needed?
For a residential mortgage on your own home you probably need a 10% deposit, or sometimes just 5%.
However, investment mortgages such as these need a higher deposit commitment from the borrower. Most lenders that provide holiday cottage mortgages will need a minimum deposit of 25% of the purchase price or valuation.
So this will apply equally to purchase loans and remortgages.
This means that the maximum loan to value (LTV) is 75%.
The actual amount you can borrow will be determined by the rent potential for your holiday cottage. The lender will need to see confirmation of the rent from a holiday letting agent. As short-term holiday letting is a very seasonal business, the rental income will be averaged.
What is an acceptable property?
Unsurprisingly, the property is the most important part of the mortgage application and it’s a good idea to get a feel for what lenders like and what they do not like.
The property itself does not actually need to be a cottage. A holiday cottage mortgage is suitable for almost any residential property which is primarily going to be run as a holiday let.
The property should be in good condition and able to be let out straight away after completion.
All holiday lets need to be fully furnished to a good standard, and be completely self-contained with their own kitchen, bathroom, living area etc
A holiday let mortgage lender absolutely won’t lend against a property that needs development work, even if you have the financial resources to support the loan whilst the work is done.
Freehold properties are favoured the most and where possible, properties should not be too close to commercial buildings or businesses as this reduces the value and saleability.
Occupancy restrictions are often overlooked until quite late in the buying process, leading to a rejected mortgage application. Not all properties are able to be used as a short term let and so enquiries should be made before you make an offer on the property as to its suitability.
What kind of mortgage do you need for Airbnb?
Are you considering stepping into the world of Airbnb hosting? Whether you’re dreaming of turning your spare room into a cosy haven for travellers or planning to invest in a property solely for short-term lets, understanding the mortgage landscape is an important first step. In this article, we’ll guide you through the maze of mortgage options tailored for the unique demands of Airbnb hosting.
How can a mortgage broker help?
If there is one type of mortgage where a broker can add some real value and useful advice, it is a holiday cottage mortgage.
To begin with there are only 20-25 lenders offering this type of loan.
Many of these are specialist lenders or commercial arms of building societies who prefer their mortgage business to come from brokers and intermediaries.
So by using an experienced holiday let mortgage broker you will have the full choice of suitable lenders, large and small.
Then there’s the type of property.
As we have already mentioned the property is the most important aspect of any application. If this isn’t right then the lender will simply decline to lend. There’s also quite a limited choice of holiday let mortgages in Scotland.
It is important to understand what occupancy restrictions may, or may not, apply to your holiday let. Restrictions can be imposed by; covenants within the deeds, local bylaws, local authority requirements etc.
For example, some properties can only be used for short term lets and do not permit full residential use. Some lenders are OK with this, but if you intend retiring to this property you can’t live there all of the time.
Then there are the really interesting properties. Perhaps a large house that has some converted outbuildings or an annex, and cottages within the grounds.
This would be called a multi-unit holiday let as there’s more than one property involved. Or what about owning a whole site full of holiday let lodges? This requires commercial finance such as a holiday park mortgage to buy the freehold land.
All of these need expert advice, and a detailed understanding of how a lender looks at each one.
Respect Mortgages works with one of the best known independent mortgage brokers in the UK. Let us introduce you to their holiday cottage mortgage experts so they can help you on your journey.
FREQUENTLY ASKED QUESTIONS
Can I let the property on Airbnb?
Most lenders do now accept Airbnb as a way of generating bookings. However, you may find it prudent to also add your property to other platforms to maximise the opportunities.
Can you get a remortgage for a holiday cottage?
Yes, holiday let remortgage options are available. The loan to value is still capped at 75% but you will have the opportunity to switch to a competitive rate, or maybe raise additional capital at the same time.
How do I apply?
There are only a small number of lenders offering mortgages for holiday cottages. Speak with an independent mortgage broker to get expert advice and the widest choices of loans.
Can a first time buyer get a holiday cottage mortgage?
It is possible to obtain a holiday cottage mortgage as a first time buyer. This is quite a limited market, so ask an experienced broker to help you.
Is a holiday cottage mortgage regulated?
The FCA regulates mortgages that affect your home or main residence. Finance for investment properties such as buy to let, holiday cottages and serviced accommodation are not covered by their regulation.
Can you live permanently in a holiday cottage?
There are two parts to this answer. First, you are not permitted to live permanently in a property that has a holiday cottage mortgage attached to it. Second, there may be restrictions in the property deeds, or even local laws, that prevent permanent occupation.
