Holiday Lets
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Holiday Lets – Frequently Asked Questions
Listen below as Chris Needham talks all about Holiday Lets.
In less than 10 minutes, you’ll know a lot more about getting your holiday let mortgage sorted.
How do holiday let mortgages work?
A holiday let mortgage is a particular type of mortgage. It’s not the standard product that you’d use to buy a house to live in yourself. Holiday let mortgages are available from a number of lenders.
The clue’s in the name – it’s for a property to let to holidaymakers. It’s different to a standard buy to let mortgage, where someone stays in the property for maybe six or twelve months. A holiday let mortgage is where you’re going to advertise that property and let it out in short bursts for weeks and long weekends.
With holiday lets, some people want a property that they can also use themselves. So you need a particular type of mortgage available from some of our lenders.
Is it hard to get a holiday let mortgage?
Obviously we’re going through interesting times at the moment with interest rates, so it is a little bit harder than it would normally be. That said, there are still lenders looking to lend and competitive rates are still available.
With a Buy to Let mortgage, lenders have the reassurance of a tenancy agreement, which gives certainty of income. When it’s a holiday let mortgage, the lender perceives it to be a little bit more risky, because different people are coming to stay there and there’s less certainty of future income.
So it is a little bit more difficult and only certain lenders do these mortgages. But that’s what we’re here for – to help you find the right scheme with the right lender, suitable for your needs.
What’s the difference between a holiday let and a Buy to Let?
Buy to Let is where you buy an investment property to rent out to tenants on an assured shorthold tenancy agreement. Typically those tenants would stay with you for at least six months.
A holiday let is a property that you’re buying to rent out to holidaymakers. These are typically in tourist areas. We’ve done quite a lot on the North Norfolk coast and Yorkshire coast – typically areas where people go for a long weekend or week’s holiday.
If I bought a property to rent out to holidaymakers, most lenders will also allow me to stay there for a certain number of days each year. I might decide to stay there in August each year, for instance. That’s a difference from a Buy to Let mortgage in that you can’t stay in your own standard rental property.
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What are the lending criteria for a holiday let?
As I say on every one of these podcasts, it varies. Every lender has their own criteria and requirements. But the basic rules are that if you’re buying a property to advertise as a holiday let, then you will need at least a 25% deposit.
The lender then assesses the income potential of the property and what you could rent it out for over a year; this is usually confirmed by a specialist lettings agency. They would assess the rental potential based on a week in the low season, one in mid season and then in the high season.
Again, each lender has a different calculation, but they look at an average of those weekly rents to assess how much you could borrow.
Are holiday let mortgages more expensive? What sort of costs are involved?
Engaging a mortgage broker will be really helpful. We can take you through all the different options, with a focus on your objectives and plans with the property. We’ll ask you how long you’re looking to keep it, how much you’re looking to rent it out, whether you want to stay in it yourself and then the ownership side.
Will you want to own it in your personal name, or is it going to be part of a portfolio that you might be setting up in a limited company? We would take you through all of that.
As we’ve discussed, interest rates on holiday lets are a little bit higher, just like they are on normal mortgages at the moment. We’d take that into account to make sure that we could get you the borrowing that you need.
Obviously there’ll be legal costs as with any purchase, plus stamp duty for buying a new property. We’d do all that budget planning with you to make sure that not only have you got the deposit, but you’ve also got enough funds for the whole transaction.
How do I apply for a holiday let mortgage?
Not all lenders do holiday let mortgages. We know which lenders provide these. Again, all of them have different criteria and a different way of working out how much they’ll lend.
It may be that the lowest cost lender on the market won’t lend you sufficient funds for the property in question, so by engaging a mortgage broker – ideally myself! – you have the best chance of finding the most suitable mortgage for your purchase.
Is there anything else we need to know on holiday let mortgages?
It’s all about getting prepared upfront. Take some mortgage advice before you find any properties, and then we can understand the income potential required to make sure a lender will let you borrow what you need.
Get that sort of those indicative figures lined up ready, so that when you go out looking at property you’re forearmed.
Your property may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages.
