I know the dream of owning a holiday home in the UK is incredibly powerful. The idea of using it yourself as a retreat now and again and escaping from the city when its not being rented is very appealing (I should know I used to live in London). I’m sure you are also aware of the great returns that are possible. However before you get carried away with the dream it might be sensible to think about how to finance a holiday let, before you get too excited!
A property which is intended to be a holiday let and which you may choose to use yourself for a few weeks a year, needs a different solution from the mainstream if you wish to get a holiday let mortgage. Read on to find out more from the experts in holiday let mortgages.
Why it’s important to understand the differences between a holiday let and other investment property types?
As mortgage brokers who specialise in holiday lets, commercial holiday let mortgages, buy to let, HMO’s, residential (plus lot’s more!) we know the market and the best options that are available. However to be clear, a holiday let should not be thought of as a buy to let. Click To Tweet They are completely different things and this is really important that you understand this basic point.
Holiday let and buy to let business models:
From a business perspective a holiday let is aiming at a different market and will see fluctuations of income throughout the year Click To Tweet. In the summer months rental income can be very profitable, but in the winter months it could drop like a stone. Would this be an issue for you?
A buy to let property on the other hand is rented out on an AST (assured short hold tenancy) basis and will ensure you have consistent income throughout the year (provided you have reliable tenants of course). You are unlikely to see the income levels that a holiday let can achieve, however it should ensure there is no drop off in income during the off-season.
Holiday let and buy to let require different mortgage solutions:
Aside from the differences in the types of properties and their markets, there is also a very different way to fund either a purchase of a holiday home compared to a buy to let.
Or if you are fortunate enough to already own a holiday let, how you might want to look at re-financing.
A normal buy to let mortgage offers more options, but this again can get more niche depending whether its a HMO buy to let, a portfolio buy to let, a limited company buy to let or a combination of them all etc. However it is clear as a general rule, holiday let mortgages are fewer and harder to come by. In fact most buy to let lenders would never consider lending on a holiday let and it’s critical you understand this point, particularly if you already have a buy to let mortgage and considering changing the usage of your property to a holiday rental!
A holiday let mortgage has similar criteria as a buy to let in terms of assessing the individual and then assessing the rental income. However one of the big differences in criteria for holiday let mortgages is personal income often (but not always) has to be higher than a buy to let. In terms of assessing the property, lenders sometimes rely on a reference from a reputable holiday letting company to give an indication of the annual income. In contrast buy to let mortgages rely on the surveyor indicating what the rental figure is.
Holiday let finance criteria
As lending criteria is always changing I would not want to outline specific criteria here, as no doubt it could be very different by the time you come to read this blog.
Suffice to say if you are considering a holiday let mortgage, make sure you are a home owner, you have a good deposit, and you are able to evidence a reasonable level of income.
However saying that there are also alternative lending sources coming into the market and these are becoming more prevalent. So just because you might not fit the criteria I mentioned above (home owner etc) don’t think you can’t do it. Like I said, lending criteria is always changing and new lenders are emerging. As mortgage brokers we are always aware of changes in this sector. Click To Tweet
Interestingly if you have assets then it could be possible to still achieve the dream of a holiday home even if the minimum income thresholds fall short of certain lenders criteria. In fact with some lenders, income is not even considered. The key sometimes is the physical asset and the level of deposit. You will be looking for at least 50% deposit and don’t expect it to be necessary cheap, but it could be a solution.
However as a starting point it is possible to only use a 25% deposit but as ever these things come down to your individual circumstances, the property you are interested in and the rental it can achieve. One top tip in terms of maximising the return on your investment; get the most bedrooms you can for your money. Larger properties tend to command higher rental and occupancy levels.
To find out how to take the next steps of getting a holiday let mortgage just get in touch.