Buy to Let mortgages have become increasingly common in recent years. Even with recent changes to tax allowances on rental income and stamp duty increases, clients are still looking to invest in property as an extra income stream. Often, second properties are purchased purely to let out to tenants who are in no way related to the landlord, in which case a standard buy to let mortgage can be granted. Buy to let mortgage lending requires that the rental income is enough to cover the buy to let mortgage payments by the lender’s required margin.
Clients may choose to not to invest in buy to let property which they cannot make use of, so may consider buying a second home for their own use as a holiday home. Often, holiday homes will be somewhere picturesque and peaceful, where clients can get away from their everyday routine and enjoy some relaxation.
For most people though, holidays and weekends away are pleasant and necessary, but can only be taken as frequently as the rest of life allows, therefore it makes sense to choose a property to let out as a holiday let. Holiday buy to let mortgages differ from buy to let mortgages, in that they assume that the property will not always be let. Unoccupied periods are simply considered void periods with a standard buy to let mortgage. No income is generated when the property is empty which may be a challenge for landlords, unless they have saved adequate funds to cover mortgage payments until the property is re-let. However, with a holiday buy to let, though the expectation is that rental income is not always consistent, when calculated across a month or a year, the income generated is usually higher than standard rent. This means that the property need not necessarily be rented, but may still generate more than adequate income to pay a holiday let mortgage, whilst making the owner a profit.
Holiday buy to let mortgages present their own challenges, since the properties may be unusual, such as a flat above commercial property in a seaside town. Though the flat can be easily let, lenders may not consider a holiday home above a shop or office to be straightforward mortgage security. Some local authorities may choose, when granting planning consent, to allow land to be developed, provided that a number of the homes being built are not occupied for the full year, so a holiday home may have restrictive clauses which mean that it has to be empty for some weeks of the year. The idea is to entice holidaymakers and tourists to the area, though lenders may be hesitant to lend since the property may be unoccupied for some of the time.
With a holiday let mortgage, it is possible to buy a holiday home which may generate good income and offers a feasible alternative to a standard buy to let purchase.