Have you ever dreamed of owning a second home by the beach, or in your favourite UK holiday spot? Or perhaps you’re looking at a second home from purely an investment perspective.
The good news is a holiday let mortgage could help you realise your dream, boost your income and it has tax benefits too.
The holiday let sector has gone from strength to strength as the surge in UK staycations has fuelled a growing demand for holiday-let mortgages. Many commentators think the boom in UK holidays is likely to continue over the next few years as concerns about travel remain and people feel safer holidaying in the UK.
This growth has been assisted by Airbnb, which is now firmly part of our holiday research, particularly for short stays and weekends away.
SPECIALIST HOLIDAY-LET PRODUCT
The number of holiday let mortgage deals on the market has more than doubled in a year, according to the latest financial data. A holiday property cannot be purchased or remortgaged with a normal residential mortgage – even if you intend to live there yourself for long periods.
Lenders might offer you a buy-to-let product but more likely you will have to obtain a specialist holiday-let mortgage product.
While a holiday let and a buy to let may outwardly seem the same, the major difference is in the style and frequency of tenants/guests.
A BTL mortgage lender will be expecting the property to be occupied permanently as someone’s home, with a legal AST agreement.
On the other hand, a holiday let can only be used for short term letting to paying guests, without an AST agreement and may be left empty for extended periods. Where the property consists of a multi-unit holiday let or perhaps will be mixed-use then this tends to be where some of the commercial holiday let lenders come in handy.
What’s the difference between a holiday let and a buy to let?
What is a serviced accommodation mortgage?
INCREASED RISK TO THE LENDER
This is because of the increased risk that a ‘rental’ property represents to the lender. For example, how will the mortgage be paid if you struggle to find people who want to stay in your property? Will you accept all male or all female parties to book the property (together with the risk of upsetting not only the neighbours but the local council too).
Will the property be empty for long durations?
This is partly why a bigger deposit is needed for holiday let mortgages.
If you intend to use an existing second home as a holiday let then don’t be tempted to simply not tell your lender about the change in use. Mortgage companies are completely within their rights to demand full repayment of your residential mortgage when they find out you’ve been renting the property out to holidaymakers.
What kind of mortgage do you need for Airbnb?
ARE YOU CONSIDERING A HOLIDAY LET?
The decision to buy a holiday cottage requires thorough research into popular locations, weighing up tax benefits, reading up on rules regarding residency periods and other potential expenses outside of the cost of buying the property itself, which can feel daunting.
As holiday rental mortgages are rather specialised, your choice may be a little limited in terms of lenders, but the good news is that there is still a reasonable selection of mortgage types for you to choose from, including fixed rate, discounted variable and variable. However, it’s likely that holiday cottage mortgages carry a slightly higher interest rate than a normal residential product.
Holiday let mortgages for Scotland are available, although you will find a reduced number of lenders.
Just as a fully furnished holiday let requires a specific mortgage, it also requires specific insurance, so make sure your policy provides the occupancy cover that you need.
Holiday park commercial finance will be needed if you want to buy some freehold land and site holiday lodges or static caravans on.
