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Mortgages for holiday lets

There are many mortgages available on the market for people wanting to buy holiday properties to let.

Buying property to use as a holiday rental home can be a worthy investment, but there are plenty of facts worth knowing before getting a mortgage for holiday lets.

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Mortgages for holiday lets can be a significant property investment, allowing you to own a home that will be used throughout the year by tourists. Unlike a typical buy to let investment, holiday lets will probably have multiple occupants throughout the year, each staying for a short period of time for their holidays.

If you are looking to stay in the property yourself and use it as a holiday home from time to time, then the criteria for the mortgage application is likely to be a little stricter than if you are just letting it out constantly.

There are also different sets of difficulties that come with buying a holiday home, depending on whether you buy a property in the UK or abroad.

If you are not at all interested in renting out the holiday home, then you may just want to get a standard mortgage.

You will probably be paying for a mortgage where you currently live, or on another property, so getting another mortgage, which is often called a second home mortgage, can be trickier.

These come with tighter lending rules and affordability assessments to ensure you can keep up with two mortgage repayments. *To learn more read our guide to second home mortgages*.

Technically a holiday home will be classed as a second home, unless you plan to rent it out for most of the year, or if it is actually your first property. So what is the difference between a second or holiday home versus a holiday let?

Firstly, a holiday home is one that is likely to be kept empty for a large portion of the year. You may come and go for your holidays, but you won’t have other visitors staying there and paying you rent.

Secondly, a holiday let property will be an investment, meaning you will be responsible for maintaining the property and trying to attract regular visitors to increase your rental income throughout the year.

Read on to learn more about how to get a mortgage for holiday lets and what the difficulties are in being approved for a second home mortgage, whether you buy abroad or in the UK.

How do I get a holiday buy to let mortgage?

Many of the traditional banks and building societies found on the high street are not as likely to offer mortgages for holiday lets. Even if they offer the standard buy to let mortgages, a mortgage for holiday lets are a different type of risk for them to deal with.

This is because the holiday property is not guaranteed to have people renting it all year round. You may have peak seasons and low seasons, and so your rental income is likely to fluctuate.

With a standard buy to let mortgage, you might only need to find one tenant to move in who will commit to staying for a year. This provides more security to the lender that you will be able to repay the mortgage.

There are extra checks to ensure you can keep up with repayments, whether or not you will have the home rented out all the time. As a result, you will probably need a larger deposit than you would with any standard mortgage. At the very least, you should aim to raise a deposit of around 25% of the value to get a mortgage for holiday lets.

Anything around the 40% mark is likely to improve your chances of getting approved for the mortgage.

To raise extra cash, consider getting a remortgage deal on your current property and see if you can release equity in your home. If your current property has increased in value and you have paid off a large part of the mortgage, then you could release enough equity to raise the cash for a deposit for a second home mortgage and use it for your holiday property.

Benefits of getting a mortgage for holiday lets

Buying a holiday property to let is an investment that requires quite a lot of commitment and perseverance. If you do manage to get a mortgage for your holiday rental property, then you could benefit from tax relief.

For example, if the property is fully furnished and run like a holiday rental home, then it can be viewed as a business venture.

So, you could be eligible for receiving tax relief on the mortgage interest payments. And just like any other trading business, any losses incurred can be offset against future profits.

To qualify for most of the tax relief benefits, your holiday property needs to be available to let for less than two thirds of the year, and to have been actually rented for around one third of the year.

So if you wanted to use the home as your own holiday destination for a few weeks in a year, you could still do that and qualify for the holiday property letting tax relief.

Things to know before getting a mortgage for holiday lets

As there are many more precautions taken by mortgage providers when it comes to holiday letting, you are far less likely to get approval for a mortgage to buy a property abroad.

Many lenders see it as too much of a risk. Firstly, because it might be much harder to find holiday occupants to regularly rent your property and provide you with the necessary rental income.

Secondly, there is additional risk due to fluctuating foreign currencies, which could unexpectedly lower the value of the property. There are other risks when buying property abroad, such as the likely unfamiliarity with the property market and relevant laws in that country.

Even when applying for a mortgage for holiday lets in the UK, there are still extra checks and tighter rules.

On top of the rental income your holiday rental property will be bringing in, many of the holiday buy to let mortgage providers will still expect you to have a sizeable income from your salary or elsewhere. If you are already paying off a mortgage in addition to the one you hope to take out for a holiday home, then this will play a large role in how much you might be allowed to borrow.

For example, if your income is £50,000 a year, but have a current mortgage of around £300,000 left to pay, you are not likely to be approved for a mortgage for holiday lets, as your income will struggle to manage both mortgage repayments.

Check what the additional cost of a second home mortgage will be, and if your finances as they are can handle it. Perhaps even better, check those costs against your finances if you were to lose part of your income or incurred large unforeseen costs, like repairing the roof or getting sickness cover.

If your finances would still be able to cope and your credit rating is in good shape, you could start looking for a mortgage for holiday lets.

Remember, the affordability criteria will still be tighter if you plan to have the property used as a holiday rental home.

Read more…

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Compare mortgages with uSwitch

Compare mortgages if you're remortgaging, a first-time buyer, looking for a buy-to-let or moving home

Compare mortgages