Buy to Let Holiday Home
Chris Needham is back to tell us all we need to know about Buy to Let holiday homes.
What is a Buy to Let holiday home?
We’ve seen quite a trend for these over the recent years. A Buy to Let holiday home is an alternative to your standard Buy to Let investment.
When I say a standard Buy to Let investment, I’m thinking about a property that you buy to rent out to tenants who would typically stay there for at least six months, maybe longer, on an assured tenancy agreement basis.
A holiday home is a property that you buy to rent out to holiday makers visiting that area. Holiday let properties are usually in a location that attracts lots of tourists. You might be renting it out to people for a week or a long weekend.
What are the advantages of investing in a Buy to Let holiday home?
There can be better yields with holiday let properties compared to traditional Buy to Let. By yields, I mean that a holiday let property might generate you more income across the year.
There can also be some tax advantages on a furnished holiday let property compared to a traditional Buy to Let. It’s definitely worth seeking specialist advice to understand that in more detail.
With the right property, you can also stay in it yourself. Some lenders will allow you to stay in it for up to 60 days per year – so you can buy this property, book it out for August and enjoy the sun in your holiday home.
What kind of properties are suitable for Buy to Let holiday homes?
We’ve arranged mortgages on holiday let properties including apartments, small cottages and terraced houses, as well as larger detached properties.
When a lender is assessing whether they are suitable to be a holiday let, they’re looking at the area – is it a tourist destination? Will it attract enough holidaymakers to generate good rental income?
They’re also looking at whether it’s a suitable property overall, in terms of its structure and whether it’s got any quirky features. All properties could be suitable – but it’s about the rent that the property is going to generate. That’s what lenders want to assess in deciding whether to accept it or not.
What are the mortgage options available for Buy to let holiday homes?
Not all lenders offer holiday let mortgages. It’s a more specialist list of lenders that do offer these products, so we’d sit down with a client during the planning stage to understand more about their overall objectives.
We would work out the most suitable scheme for their needs. Some borrowers are looking to arrange the mortgage on an interest-only basis, so that they’re only paying the interest each month. They’re not reducing the balance outstanding on the mortgage. Other people are looking for a capital repayment mortgage so that the mortgage balance is coming down each month.
Some lenders do fixed rates, some do variable rates – so there are a lot of options available to borrowers. We would assess that right at the start when considering schemes to meet your objectives.
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What criteria do lenders consider when approving a mortgage for a Buy to Let holiday home?
There are the usual checks on the property to ensure its suitability as security. Lenders are really interested in the location of the property, because a holiday let mortgage is assessed based on the rental income it can generate.
They therefore want it to be in an area that attracts plenty of tourists to generate enough income to get the mortgage approved. Lenders are also looking at how the property is going to be owned – i.e. is it in personal names or is it part of a portfolio, owned through a limited company?
Lenders all have individual criteria and vary in how they assess the lending. So, it’s important to take that advice at the start of the process to know what you’re working with.
Is it possible to use a Buy to let holiday home for personal use?
Yes, it certainly is. Most lenders will allow you to stay in the property for a certain number of days per year. Obviously they don’t want you living in it all year, because then it’s not going to generate the rental income to validate the mortgage.
But with most lenders, they would allow you to rent the property out all year and hold back up to 60 days for you to stay in it yourself. Nice, as long as you get the right weather!
Do I need to hire a property management company for my Buy to Let holiday home?
It depends how involved you want to be in running the property and the business. Plus, more importantly, how close you live to the property. You’re going to have a lot of people staying there. Sometimes someone for a weekend, then a new visitor the next day for a week.
It’s a furnished property so it would need cleaning at the end of each stay, you’d need to change the bedding and tidy everything up. So unless you live very close and you want to do that yourself, you would have to use a holiday let company or a cleaning company to do all that for you.
Can I use a Buy to Let holiday home as a retirement plan or source of income in the future?
Yes. It comes down to your overall objectives, which we’d discuss at the start of the process. Some people do buy a holiday let property for the monthly income – the yield that it’s delivering as regular income.
Whereas other people arrange the mortgage on a repayment basis so that in 20 or 25 years they’ve got a property that’s then been repaid. They can still rent it out and benefit from the income at that point. It just comes all down to personal preferences and your objectives for owning the property.
Your property may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate some forms of Buy to Let Mortgage.