The holiday period is one of the most exciting times of the year. Whether you are holidaying on your own, with your friends, or with your family, it is always thrilling to go somewhere else and enjoy a relaxing few days/weeks away from your usual home.
For many property investors, as well as anyone with a property in a ‘common’ holiday destination, the holiday season offers an exciting opportunity to let out their property, to turn it into an additional stream of income while the demand for a holiday destination is high.
So, what exactly is a holiday let mortgage? And what are the costs associated with it? Read on for an answer to these important questions.
What is a Holiday Let Mortgage?
A Holiday Let Mortgage enables someone to purchase a property, which they can then ‘let’ out to tourists and visitors to the country. This type of mortgage is generally viewed as an ‘investment’ by most people who get one.
Many holiday let mortgages allow the person(s) who take one out to stay at the property for a certain number of days per year. A common number of days permitted by the lender is 90 per year, however this can vary.
Holiday let mortgages are differentiated from typical ‘buy to let’ mortgages, because the latter typically involves a tenancy which is at least 6-12 months, and will perhaps be longer. On the other hand, a holiday let mortgage will usually be for short term rentals during key holiday periods throughout the year.
Some mortgage lenders offer holiday let mortgages on overseas properties, but this is not common. Lots of the smaller UK lenders only offer this type of mortgage on properties in the UK.
What costs are associated with a holiday let mortgage?
Just like with any type of property investment, there are a few costs associated with a holiday let mortgage which must be taken into account.
In most cases, mortgage lenders will demand a higher interest rate on a holiday let mortgage, compared with a typical residential mortgage or buy to let mortgage.
In addition to this, there are costs associated with owning and maintaining a holiday home. This includes paying council tax on the property, repairing any damages inflicted by people who have stayed in the property temporarily, utility bills, insurance, and more.
You may also have to factor in travel costs, particularly if you need to visit the property to make renovations, because the house may be a long way away (in a ‘holiday destination’). If renovations and cleaning will not be completed by yourself, then you may need to hire a third party to do this for you.
Can I get a holiday let mortgage on an overseas property?
Yes, you can get a holiday let mortgage on an overseas property. In most cases, you will need to approach a big national/international bank to get this type of mortgage, as some of the smaller lenders do not provide this service.
Once again, you should factor in the hassle of completing renovations on the property, and ensuring it is clean in between tenants, when you consider the financial rewards of an overseas investment like this.
What are the lending criteria for a holiday let mortgage?
It is important to remember that the lending criteria for a holiday let mortgage varies for each lender. Therefore, while the bullet points below provide you with some guidance on what criteria you will need to meet, this should not be treated as a definitive list.
In most cases, you will require:
- 30% deposit of the property’s value – some lenders will demand even higher than this
- Rental income of somewhere between 125% to 145% (in most cases) of the interest payable on the mortgage
- In addition to any rental income, you will usually need minimum income of between £20,000 and £40,000. Obviously, the higher, the better
- In most cases, you will already need to be a homeowner
You should approach individual banks if you want to have a specific conversation about your eligibility to secure a holiday let mortgage.
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