Offering fantastic yields and diversification opportunities, holiday lets are an increasingly popular investment choice amongst buy to let and commercial landlords. Below, we answer the most common questions about holiday lets mortgages.
With more people opting for ‘stay-cations’, demand for holiday let properties has grown significantly. Many landlords recognise the opportunity these properties offer and are keen to invest in this market.
From seaside retreats to quirkier urban properties, we cover everything you need to know about financing holiday lets below.
What is a holiday let?
As the name suggests, a holiday let is a property that’s purpose is for holidays, typically let out for short periods of time. These properties are generally furnished to a high standard and allow guests access to the whole home with plenty of amenities, such as Wi-Fi, TV, etc.
Do I need planning permission to make a property into a holiday let?
If you already own the property you plan to use as a holiday let, you won’t need any planning permission as long as no structural changes are necessary. However, you must ensure you’re on the correct mortgage and that the property has no covenants restricting its use. It’s also worth being aware that some local authorities will insist on you obtaining a special license for the property.
What mortgage do I need for a holiday let?
Whilst some buy to let lenders offer specific holiday let mortgage products, others lend under a broader commercial mortgage remit. There are a few lenders you can access directly, but as the market grows, using a broker has become the most cost-effective way to explore all options available to you.
Is a holiday let a good investment?
Holiday let properties are a great way to diversify your property portfolio. Not only do they offer fantastic rental yields, but the demand from holiday-goers is yet to ease up. Of course, where you choose to invest in holiday lets will impact your returns, so it’s important to make well-informed property investment decisions.
Can I stay in my holiday let?
Yes! The holiday let regulations state that the property must be available for let for a minimum of 210 days a year to be eligible for holiday let status. Outside of this, as the landlord, you can use the property for yourself, subject to your mortgage T&Cs.
How easy is it to get a mortgage for a holiday let?
Securing a holiday let mortgage is very similar to the buy to let mortgage application process. The types of products available to you will depend on the property value, loan to value, your financial background, and the achievable income on the property.
While some lenders base their affordability calculations on buy to let rental income, others will look at the achievable holiday let income, which is likely to be significantly higher. Working with an expert broker means they can assess the best option for you and which lender allows you to borrow more for your property investment.
How many lenders offer holiday let mortgages?
As it stands, there are over 20 active lenders in the holiday let market. The rise of Airbnb and similar sites means that as more landlords invest in the market, more lenders have introduced holiday let mortgage products to their offerings. As this space continues to grow, we hope to see more lenders enter the market, allowing for more competitive mortgage deals.
What interest rates do holiday let mortgages have?
Typically, rates for holiday let properties are similar to buy to let mortgage rates. Rates for personal borrowers will likely be slightly cheaper than for Limited Companies. However, it’s essential to consider the tax benefits of investing through an SPV. Please speak to a professional tax advisor before making any property investment decisions.
Lenders typically set a maximum loan to value (LTV) of 75% for both personal and Limited Company applications.
Can I use a residential mortgage for a holiday let?
No. As lenders view these properties as a business, you won’t be able to run your holiday let on your home mortgage. Some lenders may allow you to let out your home on your residential mortgage for a number of weeks per year, but you must check your mortgage T&Cs first.
Can I use my buy to let mortgage for a holiday let?
You will probably need to remortgage onto a holiday let mortgage first. This is because most buy to let mortgage terms require properties to be let on an Assured Shorthold Tenancy (AST) agreement. As ASTs are typically set on fixed terms of six months to three years, the much shorter periods needed for holiday lets are not permitted.
Can I get a holiday let as a first-time landlord?
Yes! You may need a higher deposit and likely a mortgage from a more specialist lender. Speak to our brokers to review which option is best for you.
Will I have to pay Capital Gains Tax and Stamp Duty Tax on a holiday let?
You will need to pay Stamp Duty Tax and the additional 3% surcharge for second homes and residential investment properties. Capital Gains Tax may be charged on disposal/sale of the property; however, if you purchase a new business, rollover relief may be available.
Please speak to a professional tax advisor for tax-specific questions you may have before making any property investment decisions.
How can I access a larger loan for a holiday let?
If you’re looking to borrow more on your holiday let purchase, alternative options may be available. For example, it may be that investing via an SPV Limited Company will increase your mortgage options – please speak to a professional tax advisor before making any property investment decisions.
Find your holiday let mortgage
It’s essential that you explore all your mortgage options with an expert broker first. Our team of buy to let and commercial mortgage makers have the expertise needed to support you with your holiday let mortgage needs. To see what type of holiday let mortgage rates you could access, call us on 0345 345 6788 or submit an enquiry here.
