Holiday let or buy to let?
04 December 2019 5417 Views
It’s impossible to ignore the recent boom of the short let market, as more and more buy-to-let owners opt to try their hand at holiday rentals over tenancies.
The rewards of a short let can often outpace the reliability of a 12-month lease. But there are some special things to consider – tax, mortgage terms, occupancy – just to name a few.
If your head’s spinning already, you’re not alone. David Donn, one or our buy to let experts, breaks it all down.
First off, what counts as a holiday let? Can I just buy a second home and put it up on Airbnb?
A holiday let is just another name for a short let – basically, a property you’re letting out on a short-term basis.
Technically speaking, no, you shouldn’t let a property that you’ve mortgaged as residential (meaning, you’ve said that you’ll be living there). If you already have a second property with a residential mortgage, you can in theory ask your lender for consent to let it out, but it’s unlikely they’ll agree to that.
What’s the right mortgage for a holiday let then?
Getting the right mortgage for the purpose of a holiday let is a bit tricky. The holiday let boom is so new, and mortgage policies are very out of date.
You have two main options if you’re buying a second property to let out at least part of the year: a typical buy-to-let mortgage, or a holiday let-specific mortgage.
For a typical buy-to-let mortgage, you’ll have a hard time being approved if you’re intending to set it up as a holiday let, because it’s seen as riskier than a typical tenancy, and calculating what you’ll get in rental income is more complicated.
There are a couple lenders who do holiday let specific mortgages, so you’re not out of luck. The rates are higher, because again, it’s seen as more risk (there might be six weeks out of the year or more that the property isn’t being rented out, and you’re still expected to be making your mortgage payments, council tax, etc.) But these mortgages are quite popular because the terms allow you to live in your property for up to three months out of the year, so you can use it as a second home when it’s quiet, for example.
When the lender looks to calculate rental yield, what they’ll do is look at what the typical low season, mid season and high season rates are in the area your property’s in, and average that out to come up with a monthly figure.
Have you come across cases where lenders have looked into it?
Lenders can check the footprint of long-term renters - voter registration, council tax, etc. So if you’re renting out a property to tenants, they can easily check that.
For short and holiday lets like Airbnb, lenders can’t necessarily check, but it’s a big risk. If you’re found to be in breach of your mortgage terms, it’s technically mortgage fraud. You’ll be forced to sell and repay it on the spot, and your lender can put a mark on your credit file (CIFAS), so it will be extremely hard for you to buy a home or remortgage in the future.
But all this can be avoided by getting the right mortgage for what you’re going to use your property for – so speak to a qualified broker (like Habito!) who can make the right mortgage (or remortgage) recommendation for your situation.
How quickly do I need to have it rented out after buying?
On your mortgage offer, most of the time it states the property will have to be rented out within 6 weeks of completion. Always chat to your mortgage broker or solicitor about the terms!
Always talk to your financial adviser to help you make the best choice for you. Once you know what you’re after, Habito can help you get the right mortgage. Chat to one of their expert brokers today.
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