When it comes to mortgages, there are a few different types that you can choose from. If you are looking to purchase a holiday rental property – also known as a holiday let – then you will want to look into holiday rental mortgages.
These mortgages work a little differently to traditional mortgages, so it is important to understand how they work before you decide if this is the right option for you.
In this article, we will discuss what a holiday rental mortgage is, how it works and why using a broker is important.
What is a holiday rental mortgage and how does it work?
A holiday rental mortgage is a type of mortgage specifically for properties that will be used as short-term holiday rentals. These properties will be residential houses and flats which are fully furnished and could also be used as airbnb’s.
This type of mortgage works differently to traditional mortgages in a few ways.
The interest rate may be higher than a traditional mortgage because the property is considered to be a higher risk investment. The amount you can borrow will depend on the rental income, similar to how a buy to let mortgage works.
You will need to have a larger deposit for a holiday rental mortgage, the minimum deposit is usually 25%, but this can vary depending on the lender.
The basic mortgage options such as repayment methods and interest rates are very much the same. You can choose from fixed, tracker or variable rate mortgages and interest-only options are normally available.
Why use a broker when looking for a holiday let mortgage?
There are a few reasons why using a mortgage broker is a good idea when you are looking for a holiday rental mortgage.
An independent mortgage broker will have access to a wider range of products from different lenders. They will be able to find a mortgage that is tailored to your specific needs and circumstances.
A good mortgage broker will have a lot of experience in the holiday let industry and will be able to guide you through the process, answering any questions you may have along the way.
There are only a small number of lenders operating in the short term letting market. Some are household names but many are specialists that prefer to work with brokers. An experienced adviser can guide you to the kind of mortgage you need for Airbnb.
If you are considering purchasing a holiday rental property, then speak to a mortgage broker today to see what options are available to you. They will be able to find the perfect mortgage for your needs and help make the process as smooth and stress-free as possible.
Mortgages can be a confusing and daunting process, but with the help of a mortgage broker, you can be sure to find the best mortgage for your needs. If you are considering purchasing a holiday rental property, then do not hesitate to get in touch with a broker today.
What are the challenges of getting a mortgage for a holiday rental?
There are a few challenges that you may face when trying to get a mortgage for a holiday let.
The first is finding a lender that offers this type of mortgage. As we mentioned before, there are only a small number of lenders who operate in the short term letting market. This can make it difficult to find the best mortgage for your needs.
Next the potential rental income needs to be high enough to obtain the mortgage you need. If there is a shortfall then you will need to put in more as a deposit. Alternatively some lenders will look at top-slicing income to enhance the mortgage available.
A common issue relates to the rental property itself. Some of the more unique and desirable holiday lets are barn conversions, annexes to a larger property or outbuildings on an estate.
Some may be considered as mixed use (because you live there as well) or multi-unit.
While brilliant as a holiday let, they are not liked by all lenders, so the knowledge of a mortgage broker will be essential to obtain finance.
Learn more – Holiday Let Property Guide
How to find the best deal on a holiday rental mortgage
When you are looking for a mortgage for your holiday let there are a few things that you need to keep in mind.
First, you need to make sure that you compare rates from different lenders. There are a number of specialist holiday let mortgage providers but also some mainstream lenders who offer this type of product. By shopping around you can make sure that you get the best deal possible.
Next, you should consider the fees associated with taking out a mortgage. Some lenders will charge higher arrangement or early repayment fees so it is important to factor this in when you are comparing deals.
Finally, make sure that you speak to an independent mortgage broker who has experience in the holiday let market. They will be able to find the perfect mortgage for your needs and help make the process as smooth and stress-free as possible.
FAQs about holiday rental mortgages
How much can I borrow with a holiday let mortgage?
The amount that you can borrow will depend on a number of factors such as the lender, the type of property and your personal circumstances. The maximum LTV is usually 75%.
Can I get a mortgage if I don’t have a deposit?
No. A cash deposit of 25% will be required. If you own other properties it may be possible to raise a deposit from these.
What type of property can I get a holiday let mortgage on?
Most lenders will only offer mortgages on residential properties that are suitable for holiday letting upon completion. So they need to be in good condition.
What is the interest rate on a holiday let mortgage?
The interest rate will vary depending on the lender but it is typically a bit higher than a standard residential mortgage. You will be able to choose from fixed, variable and tracker rates.
Do I need to have an existing property to get a holiday rental mortgage?
No, you do not need to have an existing property as there are some lenders who are happy to accept first time buyers.
Can I get a holiday rental mortgage if I am self-employed?
Yes, you can get a holiday let mortgage if you are self-employed. However, you will need to provide proof of income, accounts and tax returns.
What are the tax implications of a holiday rental mortgage?
The tax implications of a holiday let will depend on your personal circumstances. There are attractive tax benefits if your property qualifies as a furnished holiday let. You should speak to an accountant or financial adviser for more information.
- About the Author
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Mark has worked in financial services since 1995, initially as a Financial Adviser and then a Compliance Officer.
He has been a Senior Holiday Let Mortgage specialist at Drake Mortgages since 2001. He is often quoted on lenders websites and can be found in the press, talking about holiday let and available finance.
