One of the dreams many of us have is to own a holiday property we can let out to earn an income when we aren’t occupying it. It could be a beach home or a property in one of the most appealing UK holiday locations. Even if it’s a second home you want to invest in, actualising this dream requires finances.
To realise this desire fast, holiday let mortgages can really help, which also has tax perks apart from increasing your income. Here’s what a holiday let type of mortgage can mean for you.
The mortgage facility
Understandably, a holiday property you can visit often or a holiday let cannot be funded sufficiently by a regular mortgage. Luckily, there are lenders who offer holiday let mortgages allowing people to own such a property. In essence, this type of loan is uniquely offered for the purchase of a home or property that can be let out to visitors or tourists.
Unlike others, the mortgage is only for investment reasons; if you intend to stay in the holiday home you’ll have to go for a second home mortgage. As such, it’s very important to remember that the holiday let mortgage criteria is very different from a second home mortgage.
Accessing holiday let loan facilities requires that the property meet certain criteria. For instance, to access certain holiday let mortgages the property will need to be available for accommodation purposes during holidays for a minimum of 210 days annually.
Also, once up and ready it must be advertised as fully furnished housing. The good thing is, even if you’ll need the property for your own use you can still access it, allowing you to invest both for leisure and business.
Holiday lets are taxed as businesses and may attract allowances and deductions. Considering the property is a business, the income accrued need to pay for the property and exceed the running costs and expected expenses.
Naturally, you have to ensure the holiday property is located in the right place. This requires doing a little due diligence before investing your money in it. From the onset, you might want to ensure a few details are clear, such as:
- The asset’s location and popularity as a holiday destination.
- Nearby amenities such as parks, shopping centre, eateries, beach among others.
- Sufficiency of outdoor space.
- How holiday makers and visitors will use the home and what needs to be done to meet the necessary requirements.
Unlike normal buy to let properties, holiday lets come with tax benefits. The property is seen by the taxman as a business, which means you can seek tax relief on the holiday let mortgage interest. While running the property let for vacationers, tourists or visitors as an investment, expenses can be deducted from the returns. Clearly, this lessens tax liability saving money that can be reinvested into the asset to develop it further.
Available to diverse entities
Unlike others, holiday let mortgages aren’t just available to individuals only. SPV companies, partnerships to limited trading companies and trusts can also access the loan facility. Even so, remember the property you’re looking at must be within the United Kingdom in a proper liveable condition and meet the different lender requirements regarding security.
With the right lender you can easily receive mortgage for multi-unit, single dwelling, converted holiday lets and other properties that don’t meet the conditions of mainstream financiers.
Most holiday-let mortgage lenders are very clear about the terms of the facility. Obviously, if the terms are suspect and unclear you might want to take a step back. However, do remember to look into such details as LTV (loan to value), deposit, loan term and size.
LTV refers to the maximum valuation or price the lender is ready to meet, which usually falls between 60% and 75%. The deposit usually begins from a minimum of 25%. For example, if the purchase price is £600,000 with maximum LTV of 75% the maximum mortgage amount would be £450,000 while the deposit would be £150,000 (essentially a 25% deposit).
Make sure you also know the minimum and maximum loan sizes. In most cases, lenders usually have a £40,000 minimum and a £1.5 million maximum for a minimum 5 years to 40 years maximum.
While there might be other details worth noting, remember it’s possible to still get holiday let mortgages and raise the deposit from family or friends; you can also have the mortgage spread over a number of other properties you own in case you’re unable to raise the deposit right away.