Buy To Let Holiday Home Mortgages: A Guide
Investing in a property to use as a rental holiday home is a brilliant way to diversify your portfolio while bringing in extra income – but before you move forward with your plans, it’s essential that you know what to expect where borrowing and mortgages are concerned.
Mortgages for buy-to-let holiday homes are different from residential mortgages, which are intended for borrowers who plan to live in the property in question. You will not be able to access this kind of mortgage for your rental property, as the risks presented will be different.
Lenders will consider anyone looking for a residential mortgage to be less of a risk because they’ll have a higher vested interest in making sure that repayments are made on time. Fail to do so and borrowers run the risk of losing their home.
It’s also important to note that holiday let mortgages are different to traditional buy-to-let financial products, with the latter not applicable for holiday rental properties.
Again, the two pose different risks to lenders and traditional buy-to-let mortgages can only be taken out if you intend to rent the property out over the long term to tenants.
Specialist buy-to-let holiday mortgages
If you want to run an Airbnb or other such holiday accommodation, you will need to take out a specialist mortgage where the associated risks are covered.
In much the same way as a traditional mortgage, lenders will review your income and spending commitments to determine whether this new product is affordable. They will also consider how much you’ll likely make from the holiday rental property, as well.
Typically, you will already need to be a homeowner, as well as having:
– A deposit of at least 25 per cent of the property value
– Rental income of 125 per cent to 145 per cent of the mortgage interest
– Income of between £20,000 and £40,000, on top of your predicted rental income
Don’t forget about tax!
As well as understanding what sort of mortgage you’ll need to take out and what you’ll need to have in place to make your goals and ambitions achievable, you’ll also need to consider the tax implications of holiday lets.
If, for example, you decide at some point to sell the property you may have to pay capital gains tax if it’s increased in value over the years. Tax will also need to be [adi on any rental income you get.
As of April this year, tax reliefs including gift holdover, business asset rollover, business asset disposal relief and capital gains tax relief have all been withdrawn for owners of holiday lets, so this is worth bearing in mind, as well.
And don’t forget about stamp duty, which will be charged if and when you buy a second property.
Given all of this, it’s certainly worth doing in-depth research of your own to determine whether holiday accommodation is the right path for you. If you need any further guidance or advice, get in touch with the BR Needham team today.