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Holiday Lets And Second Homes: An Essential Guide
This guide will provide information about holiday let mortgages in the UK as well as mortgages for second homes. It will outline the difference between holiday lets and second homes and also explain how they differ from buy to let properties.
A holiday let is a property that you rent out, typically fully furnished, to holidaymakers multiple times throughout the year. The idea is that the letting income you receive pays for the mortgage and ideally turns a profit. As the owner, you won't live in the property but you could use it for the occasional personal holiday retreat. Holiday lets are also an option if you are looking for a retirement plan. You could buy a property in an area you wish to retire to at today's prices, let it out as a holiday let so that the letting income covers the mortgage. And then ideally, when the times come to retire, you sell your existing residential property and use the money to pay off the remaining holiday let mortgage with some money to spare. Of course this requires that you want to retire to a typical holiday let area popular with tourists.
If you want to stay in the property yourself and use it throughout the year then this would be seen as a second home. You may need a second property for a variety of reasons such as to be closer to the office during the working week, housing for other family members or simply as a holiday home to enjoy year round.
With buy to let, your property is let out on a long term basis and there is a legal landlord – tenant relationship with an Assured Shorthold Tenancy (AST). This is not the case with holiday lets and the property is rented out for short periods of time to different people (holidaymakers), throughout the year, with the holidaymakers typically paying rental in advance. It is the unpredictable nature of holiday rental income that makes many lenders nervous to offer a mortgage.
If you eventually intend to live in the property then you will need to decide on location using a combination of head and heart. You might have always wanted to retire by the sea but you should also consider what location will bring the best rental yield. Do plenty of research and consider areas where there are longer tourism seasons or have attractions that are less weather dependent. Properties in areas with plenty of year round outdoor life for example, may do better throughout the year than a coastal property which could be popular in the summer months only. But at the end of the day, your location choice will be part dictated by where you want to end up living, if you do indeed plan to retire to the property. If it is purely an investment then of course search for areas with the most consistent and highest returns.
Not all the traditional banks and building societies offer holiday let mortgages. You will need to seek advice to find out who provides such mortgage options. Speak to our qualified team of mortgage advisers to find out which holiday let mortgages are currently available on the market.
The reason holiday let mortgages are not so widely available as buy to let mortgages is that they pose a different risk to the lender as a holiday property is not guaranteed to be let out all year round and rental income is likely to fluctuate with the seasons. This is a risk to lenders as there is less security that you will be able to consistently repay the mortgage.
You will likely need a larger deposit (of at least 25%). To raise cash, you could remortgage your existing residential property to release equity in your home.
If you are not looking to let the property and generate an income, then you will need a second home mortgage and the lender will apply stricter rules to ensure you are able to afford payments across multiple properties. There are likely to be much tighter affordability assessments and lenders will assess your existing costs and outgoings.
Speak with our team of advisers today about options available to you if you are looking to take out a second home mortgage.
There are many advantages of owning a second property (either as a holiday let or as a holiday home) and it could be a great way to plan your retirement. However, bear in mind that buying a second property is a big commitment. If you are buying it as a holiday let then you will need to maintain the property all year round and consistently advertise the property to ensure it is let throughout the year. If you are buying a property as a second home then you will have the responsibility of paying two mortgages and will need to stay on top of your finances to ensure both mortgages can be paid. Before you decide whether a holiday let mortgage is right for you, speak with one our mortgage advisers to ensure you have considered all options.