What you need to know about Holiday Let Mortgages
Although buy to let mortgages are commonplace, you can’t use these if you are planning to buy a property to use it as a holiday let. With property prices rising rapidly in tourist and coastal areas buying a holiday home just for yourself is now more expensive than ever. Therefore letting your holiday home can provide you with the income you need in order to pay the mortgage. But what type of mortgage do you need?
How to get a Holiday Let Mortgage
There are a number of requirements you will have to satisfy in order to get a holiday let mortgage. However you do need to be aware that holiday let mortgages are not common and so you will have to do some research to find out what is available to you. As your holiday let will be, in effect, a second home you will have to have a number of things already in place. Firstly, the vast majority of holiday let mortgages require you to already own, either outright or with a mortgage on it, your main residence. There are also income limitations for many mortgages, which for most is around £40,000 a year in order to be considered for the mortgage. In addition to this, you will also have to obtain proof from a minimum of two letting agents that the potential income from letting your holiday let will come to a minimum of a third more than your annual mortgage repayments.
Where to start
Holiday let mortgages are a very niche market and so you may struggle to find enough information online and through general sources to be able to assess whether this is an investment that you actually wish to make. Therefore it is a good idea to get expert information from the beginning. You can get this from a mortgage broker who specialises in holiday let mortgages. They will be able to give you all of the criteria associated with each mortgage and so can help you to identify the most suitable mortgage based on your current financial status.
What sort of interest rates are there on these mortgages?
One thing to note with holiday let mortgages is that it is a commercial mortgage and not a residential mortgage so you will automatically have higher interest rates than for a residential mortgage. As with all mortgages you will have access to the best rates if you have at least a 40% deposit. If you have this you will gain access to around a 1.5% discount on the commercial variable rate of your lender. Smaller deposits will attract closer to a 1% discounted rate. However some lenders actually increase their interest rates above the variable rate, so check out the available deals carefully. It is currently possible to get two, three or five year fixed rate deals.
What you may not be aware of is that lenders often don’t advertise the fact that they provide mortgages for holiday lets, but many will accept individual applications. It is often worth speaking to your current lender to see if they will offer you a deal on a holiday let mortgage before you start shopping around other lenders.
Why you can’t use a standard Buy to Let Mortgage
If you try to use a standard buy to let mortgage for a holiday let you will find yourself falling foul of the smallprint as buy to let mortgages will almost always require you to let your property through an assured shorthold tenancy (AST) of a minimum of 6 months in length, which is no use for a holiday let that you wish to let out week by week. If you are found to be breaching the smallprint you lender could withdraw any deal you have been given and they may even force you to sell the property to repay the mortgage.
Final words of advice
Although holiday lets can be profitable, but you will have to make sure you have fully prepared in order to make it so. You will need the right mortgage, along with understanding all of the rules about owning a holiday let, particularly when it comes to insurance.
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