There’s never a bad time to buy a holiday let property. Despite – or perhaps because of – the downturn, the market in holiday lettings is still buoyant, especially in the UK.
So if you want to get into this profitable market, how do you finance your purchase? You have two main options for holiday let mortgages. One is to raise the finance on your existing home. This can be a lot easier to arrange. It can also be a lot cheaper, since the combined payment would probably be less than the payments on two separate mortgages. However, it’s still a lot, and you have to consider carefully whether you would be willing to put your main home at risk.
The other option, of course, is to raise the mortgage on the holiday property itself. This means you would have to find a specialist lender who deals in holiday let mortgages. This is the area where the credit crunch has in fact had some effect, as such lenders are harder to find than they used to be. Your best way of finding one is through a specialist broker such as ourselves.
When applying for your finance, there are some points you need to bear in mind.
- Providers of holiday let mortgages will usually not lend more than 75% of the market value of the property
- Before deciding whether you can afford your purchase, you must take into account all the costs, not just the mortgage repayment. These include insurance – holiday let insurance is more expensive than ordinary household insurance – maintenance and repairs, advertising costs, and wages unless you plan to do all the work yourself. All these have to be paid for before you break even
- Most lenders of holiday let mortgages will decide whether to lend, and how much to lend, on the basis of the projected rental income of the property, rather than on your personal income. Therefore you would be well advised to calculate this as far as you can before you apply. Of course this isn’t too difficult if you are buying a going concern. If you are starting from scratch, the best way of doing this is to research the average rental charges and rental income on similar properties in the area. Also find out from holiday lettings agencies if the market in the area is saturated, or if there is still a healthy demand. Add up all your costs and overheads, as in the last point, and work out your break-even point. Then calculate how many weeks per year the property would need to be let in order to reach the break-even point, and decide from the demand level whether this is realistic
- Remember that there is a difference between buying a holiday home for your own use, that you may let occasionally to friends and family, and buying a holiday lettings business. A holiday lettings business has to meet several criteria in order to be recognised as such by HM Revenue and Customs – one of these is that it has to achieve a minimum of 70 days per year let out at commercial rates. But once it is recognised, you can claim most of your expenses, including mortgage interest payments, against tax.
If this all seems a bit formidable, bear in mind that in the current recession more and more people are choosing to take their holidays in the UK, and the majority prefer self-catering rather than hotels. So you stand a good chance of making a success of your holiday lettings business, as long as you go about it the right way. Holiday let mortgages are still available, and the lenders want your business.