With more than 80% of Britons planning a staycation in the UK this year, vacation interest let mortgage rates have increased dramatically. To take advantage of this expanding trend, many investors are contemplating purchasing holiday homes in coastal and tourist hotspots around the UK.
If rented out as furnished vacation lettings in the UK or the European Economic Area, holiday rentals may provide a valuable second income and have unique tax advantages.
What is a Holiday Let Mortgage?
A holiday-let mortgage is a loan secured against the total value of a home rented out to visitors for a portion of the year as a company.
If you want to buy a vacation house that you can rent out when you’re not using it, you’ll need a holiday-let loan unless you have the cash or are ready to remortgage an existing property to obtain the funds.
Holiday Let Mortgage Criteria
It might be challenging to nail down the lending requirements for getting authorized for a mortgage because fewer suppliers are prepared to offer Holiday Let Mortgages on the market.
Although each provider will have somewhat different restrictions, these are the most important factors to consider.
- Minimum Income. Lenders often demand a minimum income of £20,000 to £40,000.
- Minimum and Maximum Mortgage Amounts. These typically cost between £25,000 to £750,000, while they can cost up to £1.5 million.
- Loan to Value. Lenders often establish a maximum loan-to-value (LTV) ratio of 70%, but it may go as high as 75% — and if you only need an LTV of 60%, you can receive a cheaper interest rate. A deposit of 25 percent to 30 percent is usually required.
- Rental Income. Lenders typically want borrowers to offer a prediction of how much they will earn from their holiday let to secure the best holiday let mortgage rates. When using a 5.5 percent interest rate, you must produce a gross (pre-tax) rental income of 125 percent -145 percent of the monthly mortgage repayments.
- Personal Situation. To be eligible for a furnished holiday let mortgage, most lenders need that you own your own home and be at least 21 years old.
- Main Residence. Holiday-let mortgages cannot be utilized for primary property or anywhere the mortgage applicant has previously lived.
- Portfolio Limit. Some lenders limit the number of vacation rentals you may own and rent out at any time. It might be as little as one property.
Alternatives to a Holiday Let Mortgage
Consumers may not necessarily need a mortgage to fund the cost of a vacation rental, and they may be able to accumulate money in other ways to purchase their dream second home.
Remortgage Your Own Home. You might refinance your present home if it has enough equity to cover the purchase of a furnished holiday let.
Cash Purchase. Some investors may be able to purchase a vacation rental home without a mortgage. This implies no monthly mortgage payments. There will be no additional arrangement fees, lawyers’ fees, or conveyancing expenses on top of the property price.
Things to Consider Before Buying a Holiday Let
There are several factors to consider when buying a holiday let. Purchasing a vacation rental home is undoubtedly one of, if not the, most significant investments you will ever make. Before you sign on the dotted line, make sure you’ve considered everything.
To be sure you’re making a wise investment, read the buying a holiday let tips below.
Consider Mortgage Options. You’ll need a buy-to-let mortgage if you want to finance your vacation home. Even if the market isn’t as diverse as it once was, there are still buy-to-let mortgages available; it’s just a matter of figuring out which one would best suit your needs. Consult your estate agent and your bank or building society first; they’ll know the ropes.
Choose the Location Wisely. If you’re buying a vacation home to maximize rental income, the best advice to remember is to “don’t let your emotions rule your mind.” Buy where your expert holiday property specialist informs you that property would perform best as a long-term investment, not where you would like to reside or where you may have great childhood memories.
Consider Your Occupancy. Another factor to consider from the beginning is maximizing occupancy levels. Consider how you might attract different types of reservations by understanding the market. Are you looking for small groups, large groups, or couples? The best option is to purchase a home with flexible accommodations that accommodate most or all party sizes.
Do Your Property Homework. Use Zoopla or similar sites to look up sales prices for similar homes in different locations, see if houses are frequently reduced before they sell, and how long they stay on the market. You can utilize this information in a home purchase discussion.
Don’t Impulse Buy. Don’t fall in love with any property too quickly. Buying a vacation home isn’t about love; it’s about money, so don’t put yourself in a scenario where you feel compelled to move quickly to “snare the right property.”
Obtain an independent valuation and property survey on the property you’re interested in before doing anything further. This will reveal any concerns such as subsidence, moisture, and other structural difficulties and seek experienced legal counsel. Any discoveries might show you that the perfect home isn’t so perfect after all, or they could provide you wiggle room on the price.
Wi-Fi is a Must. Wi-Fi is the most desired item in an online vacation cottage search, and if you don’t have it, your home may not be considered when people are searching to book.
Keeping Cozy in the Winter. Winters in the United Kingdom are harsh, so ensure that any cottage you’re considering has a working heating system or can be installed. Wood burners and fireplaces are quite tempting because they create a warm ambiance and are incredibly enticing for vacations and getaways planned between October and April.
Check the Legal Fine Print. Is it lawful for you to utilize the home as a vacation rental? Before you acquire a rental property, you must be sure that you are.
Developments in the Area. Isn’t it a good idea to check with the local planning office to see if there are any upcoming developments in the area? Construction, a new main road, or a housing development might all have severe consequences. A fresh new golf course, as well as new walking and bicycle pathways, may be beneficial. It’s essential to know.
Shop Around for Insurance. Before you buy a house, receive at least three or four insurance quotations. This way, you’ll know if insurance coverage is attainable, and you’ll be able to factor the cost into your calculations.
Budget Wisely. Calculate everything, including insurance, furniture, cleaning, maintenance, taxes, energy, water, mortgage repayments, and servicing fees, among other things. You may not make a large profit in the first or second year, but a 5-year budget will show you whether the property is a long-term winner.
Check Out the Competition. Look for similar houses in the area you’re interested in. This will provide you with a detailed look at your competition’s prices and occupancy rates.
Consult the Experts for Income Forecasts. Speak with a professional vacation cottage rental company with expertise in renting properties similar to what you’re considering. They’ll offer you an indication of what kind of rental revenue you may expect. It’s important to note that you shouldn’t depend on the property seller’s anticipated statistics.
Buying a holiday rental is a luxury that may have personal and financial rewards, whether you’re dreaming of a second home in the countryside, trying to make a lucrative investment, or combining the two.
The crucial criteria discussed above can help you decide if you’re wondering how to buy a holiday property since they cover everything from liveability and legality to location.