If you are thinking about buying a holiday home, you might also be thinking about the mortgage you may also need to fund the purchase.
Although you might have arranged a mortgage to buy the home you live in or even other types of buy to let investment – where you aim to secure tenancies on a continuous, fairly long-term basis – you are likely to encounter some differences when it comes to finding the mortgage for a holiday home.
It might be helpful to review a few of these differences as a way of offering some mortgage tips for buying a holiday home:
- when you are buying the home in which you intend to live full-time, your mortgage lender is interested in the market value of the property when deciding how much to lend;
- when you are investing in a buy to let property, the lender takes into account not only the value of the property but also an estimate of rental yields achieved by other Assured Shorthold Tenancies (ASTs) in the area in question;
- if you are looking for a holiday let mortgage, however, a lender is interested not only in the market value of the property, but also the very particular rental income likely to be achieved by very short-term rentals during those times of the year when it is available for holidaymakers to rent;
- rental yields on holiday homes may be considerably more than those from standard buy to let properties, but are also highly sensitive to considerations such as location and the standard of furnishings for holiday use;
- because of the special characteristics of renting a holiday home, therefore, specialist holiday let mortgage lenders may be best placed to arrange the necessary loan and finding one may rely on the expertise and experience of a specialist holiday let mortgage broker;
- when calculating the affordability of the mortgage you are seeking it is also helpful to take into account some of the distinguishing differences between property that is let on a more or less full time basis – by way of Assured Shorthold Tenancies (ASTs) – and a holiday let property;
- standard buy to let property, for instance, has recently been plagued by a spate of government decisions affecting the returns on this type of property;
- valuable tax relief on mortgage interest payments is being phased out, stamp duty has risen to 3% on the purchase price and liability for capital gains tax upon the sale of such a property may be as high as 20%;
- if you make sure to furnish your holiday let and make it available for rent for a minimum period of the year, however, you typically stand to benefit from a considerably more favourable tax regime;
- you still enjoy full tax relief on the interest your pay on any holiday let mortgage;
- the property is regarded as a business asset for tax purposes and the maximum rate for any capital gains tax is only 10%; and
- you may also offset the cost of refurbishment or renovation – and even the cost of furnishing the property – against income tax.
All in all, therefore, you may find that a holiday let property represents a sound investment, with potentially enhanced returns over those yielded by a standard buy to let property.