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What is a Holiday Let Mortgage?
To purchase a holiday home to let you will probably need a holiday let mortgage. These types of mortgage are very similar to buy to let mortgages but with one main difference. With a buy to let investment property you need an Assured Shorthold Tenancy (AST) agreement between the landlord and the tenants. The AST protects all parties and it was the introduction of the AST that opened up the buy to let mortgage market into what we know today.
However, a holiday let property does not need an AST as the people only stay for short periods of time. Thus the lenders operate on a different lending basis as their security is not as strong as with an AST. So a holiday let mortgage is used to purchase a property that will be used for holidays and not for permanent residence. Hopefully, the rental income from holiday lettings will comfortably cover the mortgage payments leaving an excess. You need to factor in how long the holiday lettings season is and maximise income during this period.
Holiday lettings is recognised as a business (generating earned income) by the Inland revenue, unlike other forms of property letting which the Inland Revenue class as investment income (unearned income). There are some valuable tax incentives for letting your property as a holiday home, but there are some specific Inland Revenue rules which you must follow to qualify. You can't let the property as a holiday let to the same person for more than 31 days in the year.
Holiday let mortgages are available upto 85% of the property value or purchase price and the loan is calculated on your income and the rental value. Nearly all holiday let mortgage lenders require a minimum level of earned income and generally speaking they require you to already have a mortgage as well.
Type of construction and location of the property to let can also affect how much money you can borrow. Obviously, to maximise holiday lettings the property needs to be in a popular location where people want to visit and stay for holidays.
You need to do your homework before buying a holiday let property. Some properties will be made of non-standard construction and so will reduce the number of lenders willing to offer a holiday let mortgage. Another important factor to research is whether the property has any usage restrictions on the Land Registry. Some holiday let homes can only be used for this purpose and so you cannot live in this property as your main residence. Lenders do not like this as it makes it more difficult for them to sell in the event of repossession. However, there are commercial holiday let mortgages for this very purpose.
About the Author: More information on holiday let mortgages can be found at http://www.holidayletmortgages.co.uk