Has this summer been a one-off or are trips to the British sea side going to become the norm?
We have all heard how Cornwall has become “overly busy” and whatever your feelings about being stuck on the M5, it does suggest that demand for quality accommodation in this country’s best holiday centres is certainly strong.
When I started House and Holiday Home Mortgages, I always knew that lending on Holiday Lets was going to be a niche area.
I started with only a small handful of lenders in this space and whilst we have completed many house purchases, remortgages and helped many first-time buyers, I have always felt it a shame there were so few lenders willing to help fund holiday let purchases.
Well in the last three weeks I am pleased to say that at least 4 lenders have opened their holiday lending doors for business.
This is a clear sign that there is a growing market for these types of loans.
It will not be long before other players big and small are in this space.
Many Buy-to-Let borrowers have felt under attack from tax changes and for lots the attractions of owning buy-to-lets are not as appealing as they were.
The existing lenders in the holiday let mortgage space at last have competition.
That can only be a good thing.
So, if you have just returned from your two weeks in Devon or the Lake District and want to know how to buy a holiday let property, to perhaps both enjoy and let out as an investment, then here are a few pointers and reminders to may be set you on your way.
I have merged together typical criteria points to give a flavour of the key areas, so everything listed below is to be taken as a general pointer:
- You will need a minimum income separate from any letting income of between £20,000 and £40,000 per annum.
- Lenders will average the income from a holiday let over a low, medium, and peak season as defined by a specialist holiday letting agent.
So, if your gross letting income is say £16,000, per annum, that is £533 a week, you would be aiming to get a loan of around about £200,000. Provided you had enough deposit, of course.
- Typically, you will need a 30% deposit. As with standard mortgages, the bigger the deposit generally means a better rate.
- In the main you will need to be an existing property owner.
- You can expect to pay similar to buy-to-let mortgage rates, i.e. just above normal residential lender rates.
- Lenders will restrict the number of holiday lets you own. But I expect as more lenders come into the space, that problem should get easier.
- A good Holiday Taxation Accountant specialist is a must in my book. There are some good incentives that are not available with the traditional BTL and having an expert to guide you through can show huge benefits.
- You will be able to use the home yourself. That is, of course, if you are happy to forfeit the income you would have received for those dates.
As with all investments, it’s not all rainbows and butterflies. There are some downsides to consider too:
- As with all property, a downturn in price and value can and does happen. Areas go in and out of vogue.
- You would be advised to get the place managed for bookings and cleaning. That will cost.
- With holiday guests coming in and out on frequent occasions, so the relative serenity of a steady tenant is not there.
- People are on holiday in your home, many will be happy and frantic and hard on the fabric!
- You could be 200 miles away from your investment making it, potentially, that much harder to manage. See point 2!
- Council Tax reliefs and tax advantages in place now may be taken away. It would be wise not to depend on these when making your investment calculations.
- Certain holiday properties which have restrictions on occupancy may not suitable for the lenders as security for a loan. Do your research upfront!
Of course, there is much more to discuss as with any major investment but as the sun sets earlier and we head home from the summer, just maybe you are tempted to think about having your own holiday let.
Commercial and some Buy-to-let mortgages are not regulated by the FCA.