Holiday Let Mortgages
What is a Holiday Let and who are they suitable for?
A Holiday Let Mortgage is in effect a commercial mortgage lent on a residential property, which will give the owner an income from a number of very short-term rentals.
These short-term rentals will be from customers looking to enjoy the attractions that the property and surrounding area offer, whether they be scenery, walks, views, the beach, mountains or a city like London’s many attractions.
They’re suitable for anyone looking to use a property as an investment but aren’t looking for long-term tenants.
Why consider a Holiday Let?
Well, Buy To Let Lending for the Higher Rate Tax Payer has undoubtedly become more of a challenge in recent times.
Extra stamp duty bills, reduction of tax reliefs meaning higher income tax bills and stricter lending criteria from the lenders worried about customers affordability has made many think twice about buying a new BTL. There are however still many reliefs and allowances that make a Holiday Let an attractive proposition. (Please speak to a qualified Accountant for all relevant detail).
At House and Holiday Home Mortgages Ltd we’ve helped consult with lenders on their policy in this space, with our expertise helping shape their criteria. It’s fair to say we know what we’re talking about.
Typical Holiday Let mortgage requirements
The criteria and rates or product deals for a lender to lend on a Holiday Let is like a Buy-to-Let, however the similarity between the two ceases right there. It’s critically important that you must not make the mistake of thinking a Holiday Let is a Buy-to-Let. (Note, it’s amazing how many advisers don’t even realise the difference!)
The main difference being is that a Buy-to-Let mortgage is arranged and granted for the property to be let in typically 6 months or 12 month stints, to the same occupier for the duration. A Holiday Let loan sees the property occupied by different peoples, either for a week or two and then a changeover takes place.
Every lenders criteria is different in the detail for the Holiday Let loan but there are some common denominators.
- Lenders will want to see the applicants earn an income of anything from £20,000 to £40,000 per annum.
- Those lenders will want to check that the average, typical rents received over the seasons will be enough to support the loan with plenty of spare capacity in the back ground for poor rental periods.
So a typical calculation may look like this:
Maximum loan 70% loan-to-value.
Loan required £150,000.
£150,000 x 140% (to meet lender’s desire for rent to be 40% higher than monthly instalment) x 5.5% (to allow for rates to rise to this level and therefore remains affordable) = £11,550 gross rental per annum (or £958 a month).
Typically, a good Holiday Let will rent out for 20+ weeks a year, so in our example above that property must make at least £577 a week for the 20 weeks.
Please bear in mind all above criteria and lender rules vary and change to suit the lenders aims and objectives. This is for illustrative purposes only.
How we can help
At this moment in time there is only a small handful of Holiday Let lenders.
Because of this, a lot of advisers seem to try and use Buy-to-Let mortgage products but that simply can’t be done. We’ve heard too many tales of people losing out on properties because they’ve been advised to sort a Buy-to-Let mortgage, rather than a Holiday Let mortgage.
We specialise in Holiday Let mortgages, and have the experience and lender relationships to be able to help you. Get in touch today to discuss.
Your home may be repossessed if you do not keep up repayments on your mortgage
There will be a fee for the advice given, the exact amount will depend upon your circumstances but we estimate it we be £250. Complex and sub-prime cases may attract a higher fee which will be typically no more than £395.
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