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How can I get a mortgage for a holiday home?
If you are looking to learn more about how to finance a holiday home, you're in the right place.
There are two general scenarios when it comes to holiday homes, either you buy a residential home that you occasionally rent out, or you buy a house with the sole intention of renting out to holidaymakers. It is possible to secure a mortgage for both scenarios; however, the former is slightly more straightforward.
What are the eligibility criteria?
The criteria that will apply depends on the type of holiday home you are looking to buy.
For those looking to buy a house to rent to holidaymakers on a short term basis, a holiday let mortgage might be most appropriate. For these mortgages, it is easier if you:
- Have an income of £25,000, although some lenders will expect £40,000. This income must be generated by other means than the property itself.
- Request a loan of at least £40,000 and under £1,000,000.
- Have a Loan to Value of approx 25%
- Are at least 21 and under 85 years old.
- Own an existing property
Can I use a standard mortgage to get a holiday let property?
If you are planning to live in your holiday home exclusively, you may find that with a standard mortgage you are permitted to rent your home for up to 18 weeks of the year. Typically you are not allowed to rent out your house under a standard residential mortgage for more than this, whereas it is permitted under a holiday let mortgage.
What about buy-to-let mortgages?
A buy-to-let mortgage is not the same as a buy-to-holiday-let mortgage.
In the majority of cases, a buy-to-let mortgage is not applicable for a holiday let scenario as they do not deal with temporary guests. A buy-to-let mortgage provider will expect tenants on an assured tenancy agreement which is not possible under a holiday let.
Rates on holiday let mortgages
You can expect to see higher rates for a holiday let mortgage than for traditional residential mortgages.
As a non-standard mortgage product, you are better off seeking out a whole-of-market broker with access to deals not available to the general public to get the best deal.
The final agreed rate will depend on various circumstances, including:
- Your deposit
- Anticipated rental income
- Your income and age
- Credit record
- The type of property
Can I get an interest-only holiday let mortgage?
There are interest-only holiday let mortgages available on the market.
Assuming you are planning to let the property, and are using a buy to holiday let mortgage, lenders may consider your mortgage on an interest-only basis. Our advisors can help you decide if this is the best option for you, get in touch today to learn more.
How much deposit will I need?
The amount of deposit you'll need will vary on whether you plan running the holiday let to provide a stable income or as an exclusive holiday home. If you are looking at letting the property full time, you can expect to part with a 25% deposit, compared to 15% if the house is for your use exclusively. This will depend on the lender, and we would recommend you seek an experienced broker to guide you through the process.
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How much can I lend under a holiday let mortgage?
The amount you can lend will depend on whether you plan to live in the property full-time or expect to generate an income.
If you are renting the property out, the lender will consider income over the whole year to account for seasonality. A few lenders will consider a minimum rental income of 125% of the annual mortgage interest; specialist lenders may expect more. This amount can also vary on the rate of tax you pay and between lenders. Lenders will almost certainly expect you to have a separate source of income to cover any shortfalls - known as top-slicing.
If you are not planning to let out your holiday home to generate an income, the amount you can borrow is based on your personal income and expenses. Depending upon your other commitments, you can expect between 4.5 to 6 times your salary - with six times being relatively rare.
Our advisors at Teito can help, complete our easy online form today to start the process.
Location Location Location
You need to pay careful consideration to the location when buying your new holiday let - and so will your mortgage lender.
The location of your holiday let will be a key determinant to future earnings. Assuming you are looking to generate an income from your holiday home, be sure to consider the features that will be attractive to potential holidaymakers, such as the weather and amenities. Make sure to take a look online to see the average nightly prices in the area you are looking at or speak to a local holiday rental agent.
What if the property is non-standard?
There is always added complexity in getting a mortgage on an atypical property.
Generally, mortgage lenders will only consider standard construction property for holiday let mortgages. Standard construction means brick buildings with a slate or tile roof. Depending on the property, there may be specialist lenders that will consider your application, contact us to find out more.
Comparing buy-to-let properties against holiday lets
There are potential tax benefits that can be realised through holiday lets.
These benefits are generally no longer available to buy-to-let landlords; however, Furnished Holiday Lets (FHLs) are still applicable subject to specific criteria. You may be able to claim expenses such as property maintenance and your mortgage interest against your rental income. To qualify, you must ensure your property is available to let for a minimum of 210 days a year and let it out for at least 105 days annually.
How can I learn more?
To start the process of getting your new holiday home, complete our simple online form, and one of our advisors will be in touch.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.