Looking for a Mortgage for a Holiday Home
“Under the cosh” – that is how the financial pages of the Daily Mail newspaper on the 10th of August 2016 described the current state of the once highly attractive buy to let property market.
The story referred to a number of steps taken by recent governments which have put buy to let landlords under increased financial pressure. These include the phasing out of tax relief on mortgage interest paid by buy to let investors and an increase in stamp duty to 3% of the purchase price.
Some owners who have decided that enough is enough and decide to sell their buy to let property may find that they have to pay up to 20% capital gains tax when they sell the accommodation.
Yet property investment remains a popular choice, especially given low returns on cash savings and an uncertain economic future. Investment in holiday let property might provide the solution.
This has the following important advantages over standard buy to let:
- if your holiday let meets certain criteria as furnished accommodation, you still qualify for valuable tax relief on the interest you pay on your mortgage;
- since your furnished holiday let is classified as a business asset for the purpose of calculating any capital gains tax – meaning that you are liable for tax at the rate of just 10%, compared to the 20% paid by some full-time buy to let landlords; and
- unlike a buy to let investor, your holiday let property also grants you full capital allowances for tax purposes – meaning that you may offset the cost of renovation and refurbishment and even refurnishing of the property against the income earned.
All of this has the effect of increasing the potential profitability of a holiday let.
This potential is also reflected in the calculation of affordability when it comes to mortgages for holiday lets. The only problem you might encounter when looking for a suitable mortgage, however, is the fact that not all lenders may be interested in funding such an investment.
To help you find an appropriate, specialist lender, offering a competitive rate of interest on the mortgage, therefore, you might want to use the services of a broker with the expertise and experience of arranging holiday let mortgages.
When you find a suitable lender, a calculation needs to be made on the anticipated return in holiday rentals. These returns on the very short-term tenancies you are granting to holiday visitors are likely to be substantially different to those you earn on the standard Assured Shorthold Tenancies generally granted to long-term buy to let tenants.
The valuation of your holiday home investment and an assessment of your likely rental income, therefore, needs to be done by a specialist holiday lettings agent and confirmed by the mortgage lender prepared to offer you the necessary advance.
You may find that your lender also requires a more substantial deposit on the purchase price than, say, a standard buy to let mortgage. For this reason, some owners turn to a further mortgage on their principal place of residence in order to secure the necessary deposit.