If you’ve ever dipped your toes into the subject of holiday letting in the Cotswold, you’ve most certainly come across a specific sort of loan – The Holiday Let Mortgage.
Holiday letting mortgages are becoming increasingly popular as Britons around the country search for their own vacation rental.
What is a holiday let mortgage?
A holiday let mortgage is a kind of mortgage that was created to help individuals who want to buy a home so they can rent it out on a frequent short-term basis. This loan can only be used for brief tenancies and cannot be used for extended stays.
A holiday let mortgage differs from a regular property loan in that it can’t be taken out through a bank the same way you would for your primary home. This specific loan is best obtained through a building society. If you’re having trouble getting started, contact a professional mortgage broker to assist you to get your foot in the door.
How does a holiday let mortgage work?
Unlike traditional mortgages, holiday let mortgages are based on a number of additional criteria that might make or break your vacation rental aspirations. Your income will be verified by the lender to ensure that you can meet your loan obligations. However, your personal earnings aren’t the only thing that counts.
When considering your finances, the mortgage company will consider how much money they believe the property will make from tourism. They’ll also determine if you’ll still be able to afford to maintain your home when there is less demand once they know how much money you stand to make on it while it’s occupied.
Differences between traditional letting and holiday let mortgages
Traditional long-term renting and Cotswold holiday letting might appear to be the same, but there are significant distinctions between them. Because demand for holiday rentals is generally higher, you can anticipate certain months to produce a lot of money.
On top of the huge financial gains that come with letting out a holiday property, you may also take advantage of significant tax benefits, including Capital Gains Tax relief.
What are the criteria for a holiday let mortgage?
Most mortgage providers will all require the same factors when considering offering you a holiday let mortgage loan:
On top of any income generated from the holiday let, you must earn at least £20,000 per year. A deposit of at least 20% of the property’s value is required. The maximum amount that a mortgage provider will lend is 80% of the property’s value. An estimated rental income exceeding 130% of the interest paid on the loan Both applicants and mortgage providers should have referenced before applying for a loan.
In the United Kingdom, a holiday let mortgage is one of a kind in several ways. There may be additional dangers associated with them, which implies that you might be restricted in where you may go for your mortgage. This implies that you’ll have fewer options when it comes to selecting a lender. A mortgage broker can assist you in unlocking many doors when it comes to mortgage providers by assisting with the process of finding one.
The tax benefits for holiday let mortgages
Did you know that if you take out a holiday let mortgage, you may be eligible for tax advantages? You will be eligible to claim capital gains tax if your vacation home is fully furnished and ready to go. You will also be entitled to equipment and fixture depreciation, which means you won’t have to pay for furniture or equipment with your own money.
There’s still more! When you retire, the income you earn on your holiday home(s) will be included in your salary, resulting in bigger pension benefits.
If you decide to sell your holiday home, you will also be relieved of taxes! You may avoid paying significant tax fees through business asset rollover relief (BARR) and business asset disposal relief (BADR).
What will a mortgage provider need from me?
In the same way as a regular mortgage, the mortgage provider is looking to obtain as much information from you as possible.
However, owing to the financial consequences of renting out a vacation property, the mortgage provider will require further unique data from you. This will include:
- All areas of your income
- The size of your deposit
- Letting intentions
- Location of the property
- How much do you want to borrow?
If you still have questions about any of the information you are required to provide to your mortgage provider, you may always seek expert advice from a mortgage broker or specialist. Alternatively, read our blog article on what information is necessary when applying for a holiday let mortgage for more details. Once you’ve worked out the finer details, why not visit StayCotswold to learn more about the practical side ofrenting?