Ross Brown, Mortgage & Protection Consultant at Yellow Brick Mortgages and owner of five holiday let properties, answers your questions on holiday let mortgages.
How do holiday let mortgages work?
Holiday let mortgages work in a similar way to a standard Buy to Let mortgage. Generally you need a minimum 20% deposit in place, although most lenders look for 25% to 30% to give you a mortgage.
Have you found that holiday let mortgages are more popular at the moment?
Since COVID there’s obviously been a Staycation boom, and I personally have even taken on five holiday let properties. People have seen a gap in the market where they can generate additional income.
You can make bigger profits from a holiday let property than you can with a standard Buy to Let, but there is a lot more work involved in setting it up. There’s also the ongoing management, the marketing, the cleaning etc. – but it works for a lot of people, depending on what they want from their investments.
A lot of my holiday let clients are of the older generation and heading towards retirement, but they still want something to do rather than retire fully. Many of them are happy to keep their hand in with a holiday let investment and will go in, do some cleaning and maintenance and reap the additional profits.
What locations are best for holiday lets?
The best areas for holiday lets are generally coastal towns and counties like Cornwall, Devon and Dorset.
Other high demand areas are the Peak District, Lake District, plus Norfolk and Suffolk – where we are.
But there are still opportunities in less touristy locations. I do work with people who use holiday let mortgages for what we call serviced accommodation. These are for people who need short-term lets such as contractors, on weekly or nightly bookings.
What’s the difference between a holiday let and a Buy to Let?
Basically it’s just regulation. A mortgage lender will specify within their terms and conditions whether you can let it out on an Assured shorthold tenancy basis. With a holiday let they will specify that they allow you to do short-term lets. A general Buy to Let mortgage won’t permit you to do that.
Is it difficult to get a holiday let mortgage?
The criteria aren’t much different from those on a standard Buy to Let mortgage. A lot of holiday mortgage companies will want some form of experience as a landlord, but there are one or two lenders available for first-timers. That means the entry level is very similar to a Buy to Let mortgage.
It’s not difficult to get a mortgage – it’s mostly just about having that deposit. The thing to stress is that you need to be prepared to be taking on a business. It’s not just a passive income rental property like a Buy to Let – a holiday let is a lot more work unless you’re using an agency to manage everything for you.
Do you need a licence for a holiday let?
There’s no licence that you need as such, but you must instruct your local council once you have bought the property. Most residential houses are liable for standard council tax, so you must register your property and ask for permission to let it out to holidaymakers.
Your property will then get moved onto business rates instead of residential council tax rates.
What are the lending criteria for a holiday let mortgage?
You will often need a minimum income of £25,000 per annum, either as one applicant or a joint application. Some lenders will want landlord experience. There are various other criteria, but every lender’s different and that is what we’re here for as brokers.
I’ve had people in all kinds of different scenarios come to me for holiday let mortgages. It’s our job to research the lenders and see who will fit the client. Someone might have a really good income but no experience in having investment properties – while the next person could have lots of experience but less income. Luckily, there are quite a few lenders out there now so it’s just a case of going to the right place.
How much can I borrow and how much deposit do I need for a holiday let mortgage?
As I mentioned earlier, the minimum deposit is 20% – some lenders do an 80% Loan to Value holiday let product.
In terms of how much you can borrow, this is dependent on the rental stress test. All lenders will want to see a letter from a holiday letting agency to confirm how much rent your chosen property can potentially achieve. As long as this fits the lender’s rental stress test criteria, and subject to the lender’s maximum loan amount, you should get the mortgage value you need.
Are holiday let mortgages more expensive? What costs are involved?
Interest rates are generally higher for a holiday let product than a standard Buy to Let for someone buying as an individual. Someone with one or two Buy to Let properties might have a rate somewhere around 2%, whereas the entry level for a holiday mortgage is just shy of 3.5%.
The mortgage might cost you more per month, but in theory you will be making more in income. So it should work out a better investment proposition than Buy to Let from a cash flow perspective.
Do you pay stamp duty on a holiday let?
Yes – duty is payable in the same way as on a Buy to Let property. Assuming you own a residential property already, you will have to pay a 3% surcharge in stamp duty as a second property.
How do I apply for a holiday let mortgage? Are there any differences here?
Obviously, speak to a local specialist broker. This is a very specialist area of the mortgage world and it’s exactly what we at Yellow Brick Mortgages are here for. I’ve got a lot of experience in this area and I really enjoy helping people get holiday let mortgages, so please do reach out.
We will sit down and do a fact find with you to explore your criteria, which lenders you can work with and what rates we can get for you. We’ll also talk you through exactly what’s involved and what you need to think about, to be certain that holiday letting is right for you.
Once you’re happy, we’ll look to get an application underway and get you a holiday let to meet your goals.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Some buy to let mortgages are not regulated by the Financial Conduct Authority