Published on October 22nd, 2016 | by admin0
Mortgages for Holiday Lets
There are regular residential mortgages for those who intend to occupy the home they own; there are commercial mortgages for commercial properties; and buy to let mortgages for landlords who have invested in property with the sole intention of letting it to tenants.
So where do you go if you are looking for mortgages for holiday lets?
The answer is that you are likely to have to find a special, purpose-designed holiday let mortgage – a type of advance which might not be available from regular mortgage lenders.
Why specialist mortgages?
Owners of holiday let property might be seen as a combination of home owner and landlord. On occasions, the property might be occupied by the owner for use as a second or holiday home; for the remainder of the time, however, the property is let to short-term, holidaying tenants, when the owner takes on the role of landlord.
It is a critical combination, since mortgage lenders insist on the appropriate type of mortgage to suit the use to which a property is to be put. If you have applied for a residential mortgage for owner occupiers, for example, your lender may not permit the property to be used for letting to tenants. Conversely, if you have a buy to let mortgage, the property should not be used for owner occupation.
With interest rates traditionally lower for buy to let mortgages compared to regular residential mortgages, some buyers have been tempted to use the former to buy a property they intend to live in as their permanent home. Such deception on the part of a borrower might be regarded as mortgage fraud – with potentially severe penalties for the borrower.
A similar argument holds for mortgages for holiday lets. If you are investing in a property which you might occupy from time to time for your own holidays but then let it on short-term tenancies to holidaymakers, you are likely to need a mortgage for these specific purposes.
Income from your holiday let
As with mortgages for properties let to tenants on a longer-term, full-time basis, your lender may take into account the expected income you might earn and use this figure when determining the amount and affordability of your mortgage.
Indeed, your profit from holiday lets may represent a better rate of return on your investment than standard buy to let property.
Both the Daily Mail and the Express newspapers, for example, have pointed to the fact that appropriately furnished holiday let accommodation is still eligible for tax relief on the landlord’s mortgage interest payments.
A detailed explanation – updated in April 2016 – of the tax rules on furnished holiday lets is published on the government website. Very briefly, this explains that in order to qualify, the property needs to be furnished to a standard fit for “normal occupation”. In addition, the property needs to be available for letting to tenants for a minimum of 210 days each year and actually rented for a minimum of 105 days a year – in other words, it is let on a commercially viable basis. Tenancies generally need to be granted on a short-term basis only and if the number of lets exceeding 31 days totals more than 155 days, the property no longer qualifies for the available tax concessions.