What you need to know
Since the rise of Airbnb, short-term and holiday letting has exploded in popularity. Airbnb is an online platform that allows people to rent out their homes or rooms to travellers. This has made it easier and more convenient than ever for people to rent out their properties, and has led to a surge in demand for holiday lettings.
The increase in popularity of holiday letting has not gone unnoticed by lenders. In fact, specialist lenders such as building societies and lenders who traditionally would lend to clients with poor or no credit history have been especially targeted by this trend. These lenders are able to react quickly to changes in the market, which allows them to keep up with the demand for holiday letting mortgages.
If you are considering investing in a holiday let, it is important to do your research and understand the risks involved. Holiday letting can be a great way to earn extra income, but it is important to make sure that you are prepared for the challenges that come with it.
What type of holiday let mortgages are there?
Pure holiday let:
A pure holiday let is a property that is used exclusively for holiday let purposes and is let out for the majority of the year. Some short-term occupation on a residential basis is permitted, but this can be very limited. This is the most expensive type of letting as the property has a commercial use.
Rates for this type of let are currently as high as 6.85% for a 5-year fixed rate at 75% loan-to-value. The affordability for this mortgage is calculated based on the income achievable on the property.
Limited holiday let:
A limited holiday let is a property that is let out for up to 12 weeks per year. This allows for letting during peak seasons and unlimited residential use at any time. This is the cheapest option as the primary use of the property is considered residential.
Rates are currently 4.19% for a 5-year fixed rate at 75% loan-to-value. There are also less restrictions, so subject toaffordability you can have as little as 15% equity in the property. Affordability for this mortgage is calculated based onyour income, the same way a residential mortgage is calculated.
High value holiday let
A high value holiday let is a property that is let out for more than 12 weeks per year and has a loan amount that exceeds the maximum that can be supported by building societies and specialist lenders. These properties have unlimited use for holiday letting, commercial activity, and residential use. This provides the maximum flexibility.
Income can be used from the holiday let to support the application, but this applies on a re-mortgage only. Rates are currently based on a margin over the Bank of England Base rate. The margin is currently from 1.25%, which provides a lending rate of 5.75%. The primary driver for affordability is any taxable income and a minimum of £100,000 of income for a sole applicant (excluding property income) is required.
How can I find out what type is suitable for me?
It is important to carefully consider your individual circumstances and needs when choosing a holiday mortgage. If you are unsure which type of mortgage is right for you, it is always best to speak to a financial advisor at Orton Financial. We have a team of experienced advisors who can help you find the right mortgage for your needs.
If you are considering buying a holiday let, please contact us today for a free consultation. We would be happy to answer any questions you have and help you find the right mortgage for you.