18th May 2023
Are you considering investing in a holiday rental property?
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A holiday buy to let mortgage is a type of mortgage specifically designed for those who wish to buy a property with the intention of renting it out as a holiday home. These mortgages are similar to regular buy to let mortgages, but they typically come with stricter lending criteria and higher interest rates.
Holiday buy to let mortgages work in much the same way as regular buy to let mortgages. You borrow money from a lender to purchase a property, which you then rent out to holidaymakers and tourists. However, you’ll typically need to put down a larger deposit than you would a traditional buy to let mortgage and the interest rates may be higher too.
The criteria for a holiday buy to let mortgage will vary depending on the lender you choose to go with. However, some common criteria include:
You will typically be required to put down a larger deposit than you would for a regular mortgage. This usually starts at around 25% of the property’s value.
The property will need to be located in a popular holiday destination to ensure a steady stream of bookings and rental income.
In line with this, lenders will typically require you to demonstrate that your holiday property will generate sufficient rental income to cover the mortgage repayments and other related costs, such as maintenance.
As is the case when applying for most mortgages, you will need to demonstrate that you have a good credit score and a stable income to show that you can afford to keep up with the mortgage repayments.
Some lenders may have restrictions on the type of property they will lend on, such as excluding apartments or properties that are not suitable for year-round occupancy and therefore will not generate income through the entirety of the year.
Though this isn’t always the case, some lenders may require you to have a property management company in place to handle any bookings and general maintenance of the property to ensure its upkeep.
It’s also worth noting that lenders may have additional criteria depending on the individual circumstances of the borrower and the property. It’s always best to speak to a mortgage advisor to understand the specific criteria for a holiday buy to let mortgage.
As well as considering a lender's criteria, it’s also important to consider what other factors you should anticipate before applying for a holiday let mortgage.
Similarly to a lender’s criteria, you will need to ensure that the location of your holiday let is popular and will generate a steady stream of bookings throughout the year in order to generate enough rental income for your property to be profitable.
Additionally, you’ll also need to consider things like upfront costs and a maintenance budget to start your property up and have it remain running throughout the year. Some initial costs to remember include:
It’s also important to remember that holiday buy to let properties are subject to different tax rules than traditional buy to let properties. To ensure you abide by any tax obligations, we would always recommend speaking to a tax advisor to get a better understanding of this.
Finally, you should also consider the current holiday let mortgage rates on the market. Just like you would for a standard buy to let or when looking at traditional mortgages for a house, finding the best rates can reduce your monthly payments over your mortgage term.
Whilst there may be a lot of technical information to understand when it comes to holiday buy to let mortgages, Investing in a holiday rental property can offer several benefits.
Holiday let mortgages can be a great way to invest in a holiday rental property. However, before you apply, it’s important to consider factors such as location, rental income, upfront costs, maintenance costs, and tax implications. By doing so, you can make an informed decision and ensure that your investment is right for you.
If you’d like to learn more about our holiday buy to let mortgages, you can visit our page here.