The differences between a buy to let (BTL) mortgage and holiday home mortgage can sometimes be a little confusing.
Here is a quick overview of the difference between the two forms of borrowing.
The basics of a mortgage
A mortgage is typically regarded as being a sum of money lent to someone for the purposes of purchasing property and the loan is secured on that property.
Whilst all mortgages share that common definition, in practice there are a number of significant differences between mortgage products. Some of those relate to how the property will be used after purchase.
Just a quick sample of some of the different types of mortgage in this one respect might include:
- owner-occupier mortgages – perhaps the most familiar type to most people
- Buy To Let mortgages
- commercial (perhaps including properties purchased for manufacturing or retail purposes)
- holiday let property mortgages
These differences are important to both the lender and indeed any insurance company providing cover for the property.
The BTL mortgage
Broadly speaking, this type of lending is aimed at what might be termed conventional landlords who are planning to let their property out on a more or less permanent basis via Assured Shorthold Tenancies (AST).
Both the lenders and any associated insurance company may well make certain assumptions about such properties, chief of which is that they will be more or less permanently occupied.
The holiday let mortgage
Here, the use of the property is significantly different to that of a landlords’ let property.
Some properties in this category might sit unoccupied for lengthy periods each year. They may be used largely by the property owners for their own holiday purposes with letting being a relatively infrequent occurrence.
Conversely, they may be let continually during the peak holiday season months but used at other times of the year for occasional weekend breaks by their owners.
With a normal let property, there tends to be one tenant living there for a period of time – which can be perceived as being less “risky” than having lots of different tenants (as you may with a holiday let).
The usage characteristics between the two types of property are quite different and that is why each requires its own specific mortgage.
In fact, if you have a BTL mortgage but your property is actually a holiday let, this could be classed as fraud, so it is important that you have the appropriate holiday let mortgage in place.
Why does this matter?
When assessing whether or not they wish to lend money on a property, any potential lender is entitled to understand the purposes that the property will be used for.
That is related, in part, to their assessment of things such as the risks involved in lending, how safe an investment it is and how much their maximum percentage advance might be.
Similar considerations apply in the case of buildings and contents insurance, where the insurance provider will wish to understand just what risks they are taking on. Their perception of those risks might vary considerably between a buy to let and holiday let property.