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FAQS about holiday letting, buy to let and their mortgages
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What’s the difference between a holiday let property and buy to let?
The main difference is in the style or type of occupancy.
Buy to let landlords let out properties on a relatively long term basis to tenants who have rights of occupancy under the Housing Act 1988. The properties are permanently occupied for a fixed period and a known rent paid monthly. The rent for the area where the Landlord owns the property is a known quality and is fairly stable.
Letting a property to long term tenants is not classed as a business by HMRC and they exclude BTL from the more favourable tax breaks enjoyed by those that operate holiday lets which are classed as a business by HMRC.
Buy to let lenders are more easily able to understand the rental situation that will support their lending and ultimately drive the loan size within LTV limits. When letting on an Assured Shorthold Tenancy (AST), rental is stable, known and valuers can obtain comparable evidence.
Holiday Lets (or Furnished Holiday Let (FHL) businesses as HMRC call them) are a different animal entirely. In Scotland such businesses are often known as self-catering accommodation. They are seasonal in their style of occupancy and as such establishing rental is more difficult to do.
The rental produced by a holiday let is more entrepreneurial in nature, because there is no tenancy in place between the owner and visitor. The guests book, pay, turn up for a week or two…….and go home!
It’s as simple as that really.
Unlike letting a property as a buy to let, where the rental has a ceiling for the house and area, a holiday let property has a flexible income ceiling!
An owner has to ensure that the guests are well catered for in terms of their holiday experience, or they won’t return again. People don’t go on holiday to “rough it”, as someone once said! An entrepreneurial owner that works on return customers could easily outperform the holiday let owner on the same street that does nothing to improve the customer experience year on year.
What’s the difference between a Buy To Let and Holiday Let Mortgage?
Buy to Let Mortgage loan sizes are driven by reference to easily assessable Assured Shorthold Tenancy rent. It’s not seasonal, and valuers can establish the market rent quite readily by means of comparable local evidence.
Specialist holiday let mortgage lenders, when considering whether to lend and if so, how much will either work from accounts or rental projections from a local holiday letting agent. Both require careful assessment and validation.
The situation re projections or accounts may affect which lender a good specialist mortgage broker recommends for a loan.
Using a specialist Broker is always a sensible option in order to avoid disappointment.