With the rise of Airbnb, beautiful UK summer weather and plenty of European visitors taking to our shores to reap the advantage of the weakest sterling position in memory, it is no surprise that holiday let mortgages continue to grow in popularity. Commercial Consultant, Andy Elley, explains what the benefits are and the type of investments we’re seeing…
My clients have been heavily investing in this sector. The yields available on holiday let properties have rocketed and it is no surprise to see well-maintained properties, in the right locations, producing yields over 10% per annum. Here at MFB, we have seen both first-time holiday let owners and experienced holiday letting companies expanding as a result, taking advantage of numerous interest-only deals in the market place.
Since the loan interest tax relief restrictions have come into full force and the impact is being felt by landlords, holiday lets are becoming increasingly more attractive as landlords look for alternative tax-efficient vehicles. From a tax perspective, in order to benefit from the more favourable treatment of loan interest it is necessary for the property to be available to let for at least 210 days in the tax year, and actually let for 105 days. There are many taxable allowance offsets available - for example, council tax, repairs, depreciation of the fixtures and fittings, and loan interest can be offset depending on your circumstances. To find out how this applies to your circumstance, please seek professional tax advice before making any decisions.
What types of property are classed as holiday lets?
The types of property we have financed vary enormously, even more so as Airbnb has diversified the market both in terms of locations and property types that people are looking for. With the increasing popularity of ‘city breaks’, UK holidays are no longer just people looking for week-long, cottage holidays in the countryside.
To give some examples, this year we have written holiday let mortgages for houses large and small, flats and dwellings situated above a commercial property (which are often better value). Alongside the more straight forward investments, there have been some that have covenants which allow only holiday lets in the property. On a larger scale, we have arranged finance on new and existing holiday let complexes.
How are holiday lets financed?
The majority of the mortgages have been based on projected holiday income, where the lender takes into account potential higher levels of return from the holiday let (instead of standard assured shorthold tenancy income). However, it is worth noting that the majority of applicants who go down this route are of reasonable net worth and have the benefit of strong outside income to strengthen their application.
If neither of the above options would work for your property, we also can look at alternative ways of raising capital. For example, using supporting security. This year I arranged commercial mortgages for clients where the lender takes a ‘first charge’ over the holiday let property and a ‘second legal charge’ over their primary residence or other security (e.g. properties which have plenty of equity). Using this scenario as our basis for a credit application, we can fund 100% of the purchase price of a holiday let. However, the client must be able to facilitate the costs of purchase (for example, legal and stamp duty costs) and the projected holiday letting income has to be able to service the mortgage in line with the lenders stress tests.
A recent conversation with one of our major holiday let lenders revealed that MFB place substantial holiday let business with them, more than any other broker in the UK. We have years of experience and knowledgeable commercial mortgage consultants who are particularly adept at piecing a deal together. Because of our expertise and dedication to the sector, we have been able to position ourselves as industry experts in holiday let mortgages. Our advisers know who is lending, providing our clients with peace of mind that we will fund their dream project, saving them time and money in the search.
We now have over 18 lenders offering holiday let mortgages, which between them offer:
- Up to a maximum of 75% loan to value (LTV)
- Rates from 1.99% on a two year fixed rate, through to 2.99% for a five year fixed rate
- Loans to individuals, SPV limited companies or trading limited companies
- Arrangement fees, some of which are free
Because several lenders consider applications from SPV and Trading Limited Companies, it often throws up the question, what entity should I borrow in? Should I borrow as a sole trader, a partnership, a Limited Company or a Limited Liability Partnership (LLP)? I am afraid one answer doesn’t fit all and every case is different. As I mentioned earlier, you will need to take professional tax advice to find the best solution for you. We have lenders who will lend to all of these categories and are here to advise you whichever route that you choose to go down.
Whether you are aspiring to own your own holiday home, are looking to diversify your property investment portfolio, or continuing to expand an existing holiday let portfolio, there are lenders out there for all circumstances. You can contact me directly to find the best mortgage for your holiday let, call on 01732 471644 or email email@example.com
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