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We help secure mortgages for vacation rentals including through Airbnb. If you are considering this type of investment but are unsure of how to finance it or get the best deal, read on.
The UK's perspective on vacationing has drastically changed over the past few years.
In the UK, there are now a lot more "staycations," and we predict that the holiday market there will continue to expand year after year.
The Following Topics Are Covered Below
Author- Aakash Nagrani CeMAP CeRER
What Are Holiday Let Mortgages?
What Is The Eligibility Criteria For Holiday Let Mortgages?
What Are The Best Holiday Let Mortgage Rates?
How Much Deposit Will I Need For A Holiday Let Mortgage?
Is There A Maximum Value On A Holiday Let Investment Mortgage?
What Tax Is Payable On Holiday Let Mortgages?
What Are Holiday Let Mortgages?
A holiday let loan is designed for landlords with properties they would like to let out on a short term basis as a holiday accommodation. Typical renting sites include Airbnb.
Holiday Let Mortgages are considered a specialist type of lending, so you won't find them as easily as a traditional buy to let.
With some holiday rentals making more in a single week than a traditional long term rental does in month, becoming a holiday let landlord can earn you a sizeable income.
Since mortgage interest relief was reduced on traditional buy to let mortgages, holiday let could also offers tax advantages that buy to let no longer can.
What Is The Eligibility Criteria For Holiday Let Mortgages?
Holiday let mortgages are designed for investment properties rented out on a short-term basis.
Some of the standard criteria include:
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Minimum income could be between £10,000 and £25,000, or a threshold of £40,000 depending on the lender.
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Loan size - typically, you can borrow from £40,000 and up to £1 million per property.
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Loan to Value - most lenders require a 25% deposit, with a 75% LTV maximum
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Age - holiday let mortgages tend to be available to applicants over 21, with some lenders putting upper age caps of around 85 on their products.
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Portfolio - in some cases, you will have a maximum number of properties that can be mortgaged with the same lender. That varied from three to ten properties.
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Rental income - lenders will occasionally need evidence of the expected rental income, which needs to be at 140% or more of the mortgage interest payments based on stress-tested interest rates.
What Are The Best Holiday Let Mortgage Rates?
Holiday let mortgage rates vary with lenders mainly being in the specialist sector.
Rates on holiday let mortgages are dependent on:
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How much deposit you have available.
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The anticipated rental income.
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Your credit rating
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Other income.
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Your age.
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What type of property it is.
You can get interest-only holiday let mortgages, which in some cases may be preferable but in these cases you'd normally need to contribute a higher deposit.
Holiday let mortgages can be taken via a repayment or interest only, however interest only tends to be more popular. Due to less competition in the market, being a specialist product rates are generally higher than traditional buy to let mortgages.
The most competitive rates are available when the borrowing falls to to 60% Loan to Value, although this requires a higher deposit.
How Much Deposit Will I Need For A Holiday Let Mortgage?
Lender's typically need a 25% deposit for a holiday home rental. Accelerated Finance works with lenders who are able to lend on a 20% deposit depending on the property, client profile and location.
Naturally, the lower the deposit the higher the risk for the lender. Working with an experienced broker who has access to more flexible mortgage products can go a long way in making sure your application is successful.
Is There A Maximum Value on A Holiday Let Investment Mortgage?
When assessing a buy to let mortgage application, a lender will first look how much rental income it will generate and take an annual average.
For example a basic stress rate calculation will be as follows:
Take a property value of £300,000
The client wishes to borrow 75% against the security
= £225,000
Example interest rate at 5.5% = £12,375 per year /12 = £1031.25 per month. * 1.25 = £1,289.
On the above assumptions, the client would need to have a rental income of at least circa £1,300. We work with specialist lenders who allow for top slicing. Top-slicing is where a lender uses a borrower's income to top up any shortfall in rent which is needed for the borrower to obtain the loan amount they require.
Have a look at our Buy To Let Calculator for further guidance.
The rental income is normally determined by the previous occupancy rate, the property's desirability and location, so effectively the more in demand the rental, the higher the earnings and the more flexible the mortgage terms.
What Tax is Payable on Holiday Let Mortgages?
Holiday lets have become increasingly popular in recent years, as their tax treatment can be more favourable than standard Buy to Let properties.
Furnished holiday lets can be treated as a business, which means that they can benefit from tax relief on mortgage interest, whilst with conventional Buy to Let properties, relief on mortgage interest has gradually been reduced over time so that it will eventually only be available at the basic rate of tax. There are several conditions to be eligible for preferential tax treatment, such as letting the property for at least 105 days a year and making it available to rent for at least 210.
It's wise to seek independent advice before investing in a new holiday let. You'll need to know about things like average occupancy levels, maintenance costs, service charges, rental income and overall what profit you stand to make after you've factored in your mortgage interest charges.
Disclaimer:
This article is intended to provide a general understanding of the topic. The contents should not be treated as advice.
Please note Accelerated Finance only considers applications for commercial or investment properties.
Your property may be repossessed if you do not keep up repayments on the finance secured against it.