Going abroad is so pre-pandemic. The staycation is here to stay… which means the holiday let market is booming, and with it, the demand for holiday let mortgages.
If you're thinking of investing in a holiday let property, it's important to understand why you need a specialist mortgage for it, the criteria lenders look for, and when to start the mortgage process.
What is a holiday let mortgage?
A holiday let mortgage is a niche financial product. It’s a type of mortgage specifically designed for properties that are rented out on a short-term basis to guests, holidaymakers and those wanting to let a property on Airbnb for example. Holiday let mortgages typically have slightly different criteria than a traditional buy-to-let or residential mortgage.
Here are some of the benefits of a holiday let:
Potential for high rental income: Holiday lets can generate high rental income. With an emphasis on location, they’re usually near tourist attraction such as national parks, beaches, walking routes or vibrant towns and cities. In other words, they’re in places people want to visit.
Personal use opportunities: You can stay in your holiday let if you’re the owner. Use it for quick getaways or family breaks. This can make it a more enjoyable investment than a traditional buy-to-let property.
Tax benefits: Holiday lets may be eligible for a number of tax benefits, such as mortgage interest tax relief and business rates relief. This is something you’ll need to check with a tax specialist.
Capital growth: Holiday let properties can also appreciate in value over time. Many owners plan ahead and see it as a long-term investment, or even as a place to settle during retirement.
But its’ important to note that there are also some risks associated with buying a holiday let property. These include:
Vacancy risk: Holiday lets may not be rented out as often as you want. This can lead to gaps in rental income.
Regulation risk: The government is considering introducing new regulations for holiday lets. Watch this space and be prepared for changes to things like to operate in this market.
Overall, buying a holiday let property can be a good investment for the right person. However, do your research and understand the risks involved before you decide whether to go ahead.
You need to be on the right type of mortgage
If you’re on a BTL or a residential mortgage, you’re most likely not covered to switch usage and suddenly start running it as a profitable holiday let and your lender will find out one way or another. They may see you advertising on Airbnb or other websites, or they might read reviews about your thriving business on a travel site. But once they discover you’ve broken the terms of your mortgage, there are consequences. A fine… or worse.
So, make sure you choose the right type of mortgage – one that that covers your property. And if you’re not doing things by the book now, I’d strongly suggest you get that sorted.
What are the standard criteria for a holiday let mortgage?
A good mortgage advisor will be able to find a number of deals for you to think about. In truth, the standard criteria for a holiday let mortgage can vary from lender to lender, but some common requirements include:
A minimum deposit of 20-25%.
A good credit score.
A good rental income potential.
A stable income.
Being a property owner already.
And a potential holiday let property that meets the lender's requirements.
As with any other mortgage, you’ll need to get your documentation together. Make sure you’re clear about all the details, terms, and conditions before making your application.
What are some quirky possibilities for holiday let mortgages?
In addition to traditional holiday let mortgages, there are several quirky possibilities for financing your holiday let property.
For example,
some lenders offer mortgages on unusual construction types. Others will look at properties with restrictions, i.e. those that can only be used in a certain way or for a certain amount of time.
Wetlands can be very popular with tourists and some lenders offer mortgages for properties in flood risk areas. However, these may often require higher deposit requirements and stricter lending standards.
Deck access is a popular feature for holiday lets, but it can also increase the risk of accidents. Some lenders offer mortgages for properties with deck access, but they may require additional insurance.
Remote locations can be attractive for holiday lets, but they can also make it difficult to manage the property. So long as it’s possible to access the property, you can think about it. If a lender is offering mortgages for properties in remote locations, they may require that you work with a local property manager.
TOP TIP - Always highlight all the potential tricky pieces of your situation upfront to ensure you find a lender who’s going to be willing to help. It’ll save you time and potentially money too.
When should you start the mortgage process?
It’s not an exaggeration to say that starting the mortgage process early is a wise course of actions. And even if you’re not yet ready to buy a property, getting an agreement in principle can give you time to research lenders and compare rates, and it will also give you a better idea of how much you can afford to borrow.
Most purchase mortgage offers will have a 6-month period on them and Remortgage offers will range from about 3-6 months, so if you’re an existing holiday let owner it’s worth starting to look at your next mortgage product about 6 months from your rate expiry date.
The holiday let mortgage process:
Once you’ve got a clear idea of exactly how much you can borrow and what your monthly payments will be, it’ll be easier to find a property you can afford.
Research lenders in the holiday let property niche or find a specialist broker. This helps to make sure you find lenders offering the right rates and terms for your needs.
Once you have found a few lenders, compare their rates and terms. Make sure that you understand all the fees and charges that may apply.
If you are not sure where to start, it is a good idea to get professional advice from a mortgage broker. They’ll do all of this for you! A mortgage broker can help you find the best mortgage for your needs and guide you through the process.
Remember… if you haven’t done it before, the holiday let mortgage market is a complex and ever-changing one. It’s important to do your research and understand the different options available to you before you choose a mortgage. By understanding the criteria and possibilities, you can make sure that you get the right mortgage for your needs.
House and Holiday Home Mortgages
We are mortgage brokers who specialise in UK holiday property.
If you want our help with a holiday let purchase or remortgage, then please contact us on 01453 887179 or hello@hhhmortgages.com for a no-obligation conversation.
As a brokerage, we do charge fees, but only once we’ve got you a suitable formal mortgage offer, so there’s no cost to find out if we think we can help you. Or we’ve got lots more information in our “Advice and Guides” page of www.hhhmortgages.com.
You can also connect with our director, Joe Stallard, on LinkedIn for frequent holiday property updates.
This article has been put together in July 2023 and is accurate at the time of publishing. Of course, things can change so always get specialist help and check on your own personal circumstances.