Q Do we need to have a specific holiday-let mortgage rather than a buy-to-let mortgage for a house we do not intend to live in ourselves? We will be holiday letting it for 12 months of the year. SE
A Yes. Buy-to-let mortgage lenders make it a condition of the loan that you let any property on an “assured shorthold tenancy” which gives a tenant the right to live in a property for a fixed number of months at the rent agreed in the tenancy agreement. This is inappropriate for short-term holiday lets of one or two weeks to lots of different people. It is also insufficiently flexible to allow you to charge different prices for high, low and mid season.
With a buy-to-let mortgage, the lender uses a valuer to assess the potential rental income of a property. In contrast, for a holiday-let mortgage, the lender looks at actual income achieved (if the property being bought is already used for holiday lettings) or asks for the opinion of a holiday letting agent who has experience of managing holiday properties in the area where you want to buy.
With both types of mortgages, the rental income will determine how much you can borrow because lenders expect the rental income to cover the mortgage interest payments by at least 125%, but it could be more. The amount you can borrow also depends on the percentage of the property’s value (as determined by the lender’s valuation) that lender is prepared to lend, which is typically from 60% to 75% with holiday-let mortgages.
To be eligible for a holiday-let mortgage, you’ll need a minimum income of £20,000 to £40,000 apart from the rental income depending on the lender and some lenders also insist that you are already a homeowner.
One of the main drawbacks of holiday-let lending is that there is not that much choice of mortgage. Only a handful of lenders – including Cumberland, Leeds, Market Harborough, Monmouthshire and National Counties building societies – offer holiday-let mortgages and not all the mortgages available will be suitable for you. For example, you can rule out Market Harborough because you would only be able to let your property for 15 weeks of the year.
If the property you are thinking of buying isn’t in Wales or South West England, you can also rule out the Monmouthshire. You can speed up the process of finding a suitable lender by using a specialist holiday-let mortgage broker.
Muddled about mortgages? Concerned about conveyancing? Email your homebuying and borrowing worries to Virginia Wallis at virginia.wallis.freelance@theguardian.com
