Let us save you time and effort researching the market for a Holiday Let Mortgage.
Our in-depth mortgage knowledge and access to the widest range of holiday property lenders mean we can increase your chance of both getting you a better rate and being accepted for a mortgage quickly.
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Why Choose Fort Advice Bureau LTD?
Our experienced Management Team has over 50 year’s worth of combined knowledge in the mortgage industry.
We can quickly assess your needs and compare the most suitable products to find you the most suitable deal.
With an honest, transparent and consultative approach, we are 100 per cent focused on delivering a first-class service every step of the way.
We build strong, long-lasting relationships with lenders and are not reliant on a computer-generated response.
Fort Advice Bureau make the entire process of arranging holiday let finance a smoother experience, in aim of saving you time and money.
Experienced UK Wide
Holiday Let Mortgage Advisers
Whether your ideal holiday home is beside one of Britain’s
best-looking beaches, in the heart of a characterful cathedral
city, or deep in the countryside surrounded by nothing but
rolling hills, Fort Advice Bureau can give you
the best chance of mortgage success.
There are many exciting opportunities to be considered in the Holiday Let arena resulting in the further opportunity to maximise your investment return whilst taking advantage of the tax breaks that might be available to you, although the latter is best discussed with a tax adviser. That said, this particular area of the mortgage market can be complex, so it’s essential to acquire the best advice.
What is a Holiday Let Mortgage?
Holiday let mortgages are specifically designed for people looking to borrow money to buy a property that will be let out on a short-term basis to tourists (as a business).
A holiday let is not to be confused with a ‘buy to let’, which is a long-term rental. It’s also very different from a ‘holiday home mortgage’, which is a second home that only you will use.
When done correctly, a holiday let mortgage could help you achieve your dream, boost your income, and deliver tax benefits too.
The UK holiday rental market is thriving
Britain has been labelled the ‘staycation nation’. The coronavirus pandemic — and the consequent restrictions — certainly accelerated the popularity of the ‘staycation’, energising the holiday let mortgage market with exciting opportunities.
That said, people of all ages are now asking the question: “why go abroad when there is so much history and beautiful scenery to be enjoyed right on my doorstep?”.
Staycations are here to stay with a host of spectacular places right here in the UK. Right now, mortgage lenders are expanding their deals to meet the demand, and at Fort Advice Bureau, we give you the information you need to understand whether a holiday let mortgage is right for you. We can untangle the jargon and help you understand the rules.
Specialist Holiday Let Mortgage Broker
Fort Advice Bureau has experience helping people across the UK secure all types of holiday let mortgages, including:
The holiday let mortgage market can be complex to navigate with various ‘bumps in the road’, especially when
going direct to a mainstream lender. We believe the mortgage journey should be exciting, not daunting.
Our friendly, professional and knowledgeable Advisers can make the entire mortgage journey smoother and simpler.
We take the time to get to know you, your circumstances and your vision for the future — giving you the best
chance of being accepted for a holiday let mortgage. We maintain strong and productive relationships with
mainstream and specialist lenders; therefore, we remain up to speed with criteria changes, and we can carry out
all of the legwork on your behalf.
Secure the right holiday let mortgage at the right time
The sun, sea and sand is calling — staycations are on the rise. As a result, the demand for ‘Airbnb mortgages’ grows.
That said, many major lenders are still adapting to the Airbnb business model, and this can mean you may quickly discover a lack of options when going direct to big banks and building societies. At Fort Advice Bureau, we already know the lenders with specific products for holiday lets, or in some instances, a short-term letting range.
This will depend upon a number of factors ranging from the type and condition of the property, the location, is it already a going concern and if so, what income is derived during the low, mid and high seasons, the applicant’s income (most lenders have a minimum income criteria), age, health and these are to name just a few. Your adviser will talk through your project with you and discuss all of the issues that will be relevant.
Due to the nature of a holiday let property, lenders may view these as having a higher risk and so generally speaking a minimum of a 25% deposit will unlock most of the marketplace but there are lenders who will consider 20% as a minimum. However, with the increase in risk at 80% LTV, comes the increase in rate. If you can put down a larger deposit, you will likely have access to a greater selection of mortgage options.
You will need a specialist mortgage designed for holiday let properties. You cannot purchase or remortgage a holiday let using a residential mortgage and traditional buy to let mortgages are also unsuitable as the property may only be let out at certain times of the year, rather than on an ongoing basis.
Lenders will assess your application based on several criteria and these will differ from lender to lender. For the purposes of income assessment and affordability, a typical assessment will be derived using an average of the high, mid and low expected seasonal rental income. A reputable holiday letting agency is normally used to provide confirmation of these figures in writing. The lender will then take an average of these seasons over a 24-week period to calculate the annual rental income.
As an example, if high season is £900, mid-season is £620 and low season is £400, this equates to an average of £640 over 24 weeks to give an annual rental figure of £15,360. This then divided by 12 to give a monthly rental expectation of £1,280. The lender will then typically apply an Interest Cover Ratio (ICR) of 145% above the mortgage payment typically using an interest rate of 5.5% as a stress test. Accordingly, the calculation might look like this: –
£1,280 / 1.45 = £882.75 / 0.055 = £16,050
£16,050 x 12 therefore gives a maximum lend of £192,600
Lenders may also require the applicant to have a minimum income level already in place and this too varies from lender to lender but may be as low as £20k pa.
Other stipulations may apply, and your adviser can discuss these with you.
In general, you can expect to pay a little higher interest on a holiday let mortgage compared to a residential mortgage to reflect the lenders’ additional risk. However, potential rental income for popular holiday let properties may more than compensate.
The biggest difference is that holiday lets are rented out over short periods and the rental pattern is seasonal, and this is reflected in how lenders calculate the loan size. Nobody is allowed to use a holiday let as their main residence and lenders assess the projected rental income to calculate the maximum loan available.
Tenants at buy to let properties stay for longer periods and letting is via an Assured Shorthold Tenancy (AST) and lenders assess the loan value based on the AST income. Holiday lets are not permitted under ASTs.
If you select the right property in a popular tourist destination, you should be assured of a healthy return on your investment although it must be remembered that there are no guarantees. Recent events have seen a significant increase in people staying in the UK for holidays and this trend is expected to continue, so rental income from holiday lets is expected to continue to grow.
A holiday let property is treated as a business for tax purposes and if it qualifies as a Furnished Holiday Let (FHL), reduced rates are payable on income tax and capital gains tax. There are additional benefits in capital allowances and how income is treated for pension purposes.
However, as the holiday let is treated as a business, VAT is due if registered and local councils levy tax on business rates instead of charging council tax.
The government currently charge stamp duty on a tiered basis related to the purchase price of the property. In addition, residential property investors are currently required to pay an extra charge of 3%. The purchase of a holiday let would therefore currently attract the standard rate of stamp duty plus the 3% surcharge.
You will need to seek permission from your current lender and this may give rise to a change in the interest rate being applied to the mortgage. If your current lender doesn’t operate in the holiday let market, they may not allow you to switch and ask you to remortgage to another lender.
Tax treatment varies according to individual circumstances and is subject to change.
Those considering setting up a holiday let business should consult a tax specialist to be certain of their tax arrangements.