Holiday let buy-to-let mortgages
Are you considering purchasing a holiday let property and want to explore your financing options?
You are in the right place!
We will delve into the world of holiday let mortgages and provide you with all the information you need to make an informed decision. Whether you are new to the market or an experienced investor, we will guide you through the process and highlight the benefits of holiday let mortgages. So, let’s get started!
Holiday buy-to-let mortgages
One financing option that stands out as the most suitable for purchasing a holiday let property is the holiday let buy-to-let mortgage. In fact, it is the only option specifically designed to meet the unique needs of short-term rental investments. While other financing options may exist, they often fall short in terms of providing the ideal solution for purchasing a holiday let property.
This type of mortgage is specifically designed for investors who wish to invest in a property with the intention of renting it out on a short-term basis, listing them on platforms like Airbnb. Unlike traditional buy-to-let mortgages, holiday let mortgages have their own unique requirements to have a mortgage approved and operate in the holiday rental market.
What is the holiday let mortgage or an Airbnb mortgage?
A holiday let mortgage, also known as an Airbnb mortgage, is a specialised mortgage product tailored for those looking to purchase a property specifically for holiday rentals.
This type of mortgage takes into account the expected income generated by renting out the property on a short-term basis, allowing you to have the potential for bigger returns than a standard buy-to-let property.
How to buy a holiday let
1. Research and Planning: Start by researching popular holiday destinations and areas with high demand for short-term rentals. Consider factors such as:
- proximity to attractions,
- transport links,
- seasonal demand, and
- the average price per night in the area for the type of property you want to let
2. Financing Options: Once you have researched your are and are clear on the property values and the likely rental income achievable, both seasonal and long term rental, we will source the market and provide you with the best interest rate, terms, and repayment options for your investment.
3. Property Search: Begin your property search, keeping in mind your budget and target market. Engage with local estate agents or browse online platforms to find properties that have more chances of being in demand for short-term rentals.
4. Property Evaluation: Once you identify a potential property, conduct thorough due diligence. Assess its condition, location, and potential rental income. Consider factors like occupancy rates, local regulations, and any renovation or furnishing requirements.
5. Mortgage Application: Prepare the necessary documentation, such as proof of income and bank statements and we will recommend and apply for your holiday let mortgage on your behalf. We process and hold your hand through to completion.
6. Legal Considerations: Seek professional advice from a solicitor or conveyancer to ensure a smooth transaction. They will handle the legal aspects, including property searches, contracts, and title transfers.
7. Insurance and Management: Protect your new asset with holiday let insurance. Consider employing a property management company or handle bookings and maintenance yourself.
8. Marketing and Bookings: Create an enticing listing for your holiday let property. Some landlords use the power of online platforms and social media to reach potential guests to maximise their occupancy rates.
Is holiday let better than standard buy-to-let?
The decision between holiday letting and traditional buy-to-let investments depends on your goals and preferences
Holiday let properties can provide higher rental yields and the flexibility to use the property for personal vacations. However, they may require more active management and can be subject to seasonal fluctuations. On the other hand, buy-to-let properties offer long-term stability and a potentially wider tenant pool. Bear in mind that you will need different mortgage products depending on the type of strategy you choose, and the rates tend to be lower for standard buy-to-let mortgages.
You will need to consult an accountant for specific advice but holiday mortgages have become more popular as they offer the ability for landlords to deduct all of the interest from the rental income before calculating profit, unlike standard buy-to-let now.
Holiday let mortgage criteria
Lenders offering holiday let mortgages typically have specific criteria that borrowers must meet
While these criteria may vary among lenders, common factors include:
- A minimum property value
- A maximum loan-to-value ratio
- A minimum rental income requirement
- Proof of experience as a landlord or property owner
The minimal rental income required in this case can demand a little bit more math than a regular buy to let property. By knowing your average annual rental income, the lender will calculate your affordability. First, you need to discover the potential average yearly income across different seasons:
Low season rental + middle season rental + high season rental / 3 =
average rental income
The lender will assume an occupancy rate of 70% in a year (or 30 weeks yearly).
Your yearly rental income will be the average income across different seasons multiplied by 0.7.
With that number in mind, most lenders will require that the property can yield a minimum rental income of 145% of the interest monthly payments.
The good news is that lenders for a holiday let mortgage tend not to ask for a minimum personal income to approve a holiday let mortgage.
How much deposit will I need for a holiday let?
The deposit required for a holiday let mortgage varies depending on several factors, including the lender’s requirements and your financial profile.
Generally, lenders may require a higher deposit for holiday let mortgages compared to residential mortgages. A deposit of 25% to 30% of the property’s value is the market average. However, it is essential to provide us with your rental valuations for us to determine the specific deposit amount required for your holiday let investment.
Holiday let mortgage rates
Holiday let mortgages often come with slightly higher interest rates compared to residential or traditional buy-to-let mortgages.
This is due to the perceived higher risk associated with short-term rentals. However, these mortgages also offer the potential for higher rental yields, which can offset the increased costs.
Stay tuned with the market conditions, potential rental income, and overall profitability when assessing the mortgage rates and choosing the right product for your investment.
Holiday let rules
Before entering the holiday let market, it is recommended that you study the relevant regulations. Local authorities may have specific rules regarding short-term rentals, such as registration requirements, safety standards, and tax obligations. Compliance with these regulations will ensure a smooth and legally compliant operation.
Investing in a holiday let property can be a lucrative business, providing both financial returns and the opportunity to create unforgettable experiences for guests. With the right knowledge and a well-structured holiday let mortgage, you can turn your dream of owning a holiday rental property into a reality. Remember to conduct thorough research, understand the market dynamics, and let us guide you in choosing the mortgage product that aligns with your investment goals.
Can I get a mortgage for a holiday let?
Yes! Many lenders offer specialised holiday let mortgages designed specifically for financing holiday rental properties. Ensure you meet the lender's criteria and provide the necessary documentation to secure a mortgage for your holiday let investment. Some lenders will require previous experience as a landlord, but some lenders will consider your application as a first-time landlord in the holiday rental world.
How can I get an Airbnb mortgage?
They are the same! You will apply for a holiday let mortgage and happily list your property on the Airbnb website!
How does a holiday let mortgage differ from a residential mortgage?
The eligibility for them is quite different. While for the residential mortgage the lender will want to see your personal income, for the holiday let the potential rental income will be its main reference for affordability. The criteria, interest rates, and deposit requirements may also differ between these two mortgage types.
What is a serviced accommodation mortgage?
A serviced accommodation mortgage is a specialised financing option for properties that offer short-term, fully serviced accommodations. These properties typically provide hotel-like services and are popular among business travellers or vacationers looking for a higher level of convenience. As the holiday let mortgage is the financial pathway for short-rental properties, it can be used to finance a serviced accommodation rental property.
Is a holiday let a growing industry?
Yes, the holiday let industry is experiencing significant growth, driven by the rising popularity of short-term rentals and the shift in travel preferences. Only during the 2022 year, Airbnb increased its revenue by 40%*.
What is the biggest advantage of having a property to let on Airbnb?
The biggest advantage of having a property listed on Airbnb is that the guest will pay for the stay before it happens. This is a plus when applying for a holiday let because the lender knows that the chances of not getting paid are quite low.
Can I Airbnb with a holiday let mortgage?
Yes! You can Airbnb your property if you have a holiday let mortgage. In fact, many holiday let mortgages specifically cater to property owners who wish to rent their homes on platforms like Airbnb.
Can I Airbnb with a buy-to-let mortgage?
This may not be the best scenario. While it is possible to list your property on Airbnb with a buy-to-let mortgage with your lender's authorisation, it is always best to apply to the mortgage specific to your investment goal. Standard buy-to-let mortgages are typically designed for long-term rentals, and using the property for short-term rentals like Airbnb may violate the terms of the mortgage if you don’t have your lender's authorisation to do so. Consulting with one of our specialised mortgage advisors is the best way to understand the implications and explore alternative financing options if needed.
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Remember | Your home may be repossessed if you do not keep up repayments on your mortgage.
Not all Buy to Let Mortgages are regulated by The Financial Conduct Authority.