Holiday Home Mortgages & Insurances

Mortgages

Whilst there are specific holiday home mortgages that are tailored for your bespoke needs, there are other alternatives if you do not feel this type of mortgage covers your requirements. Holiday let mortgage products rose from 74 in 2020 to 186 in 2021 as the demand for staycation in the UK grew due to restrictions of international travel. Despite the growth not all major lenders do not offer holiday let mortgage products as instead small building societies offer the product. If you’re interested in a holiday let mortgage but are unsure on where to start it may be best to speak with a broker who can review the available option and find the more suitable package for you. 

You will be required to put down a 25-30% deposit to obtain a holiday let mortgage, this is higher than other mortgage products as there is greater risk where tenants typically reside in the property for longer periods of time. Lenders often require a rental income of 125% - 145% of the interest payable on the mortgage. Therefore a property worth £500k would require a deposit of £150k (30% deposit) and would need to be generating at least £22.5k a year in rental income assuming a mortgage interest rate of 4.5%.

Advice for finding the best policy:

• Ask questions to ensure you know everything you need to know before making your decision. 
• Provide accurate information to ensure your get an accurate quote

Alternative Mortgage Options for your Holiday Let.

Buying a new property is not affordable to some people but one alternative to using a mortgage to purchase the property is to buy with cash. The benefit of buying with cash is you will not have to consider the mortgage costs when calculating your monthly income and expenditure, in addition you will not be subject to changes in your costs due to fluctuations in interest rates which could have a big impact on the value of your mortgage repayments. Understanding your predicted income and costs is vital to ensure your holiday let business be profitable or at least covers the cost and allows you to enjoy the property yourself.

A second option when considering the traditional holiday let mortgage is to re-mortgage your home to increase your available capital, allowing you to put down a great deposit. If you have owned your property for a long period of time you may even have equity in your property and therefore you could use this equipment to contribute toward the property purchase. 

Holiday Let Insurances

Holiday let insurance covers holiday homes that are let to paying guests, the policy will usually cover liability, accidental damage & loss of rent. The commercial aspect of a holiday means a standard home insurance will not cover your holiday home & would likely invalidate the insurance. Typically holiday home insurance is divided into 2 categories, building insurance & content insurance. 

Building Insurance covers the main structure and permanent fixtures ie walls, roof, ceiling, fitted kitchens or bathrooms. 

Things to consider:

• Some insurers do not cover the general wear and tear of a property over time and as such this is often an expense you as the owner must cover yourself. 
• When you’re filling out your policy make sure you include all of the fixtures you would like to include or else when you come to make a claim you will not be covered and left to cover the cost yourself. 
• If you make any home improvements to your property which we thoroughly advise, it is important to tell your provider so that they can update your policy accordingly. If you fail to let them know and you make a claim you may find your insurance is invalid. 

Content Insurance covers personal belongings such as furniture & appliances if lost, damaged or stolen.

Things to consider: 

• Make sure your contents insurance covers guests and not just family members, the main aim of your business is to welcome guests to your holiday home and therefore it is vital your insurance covers this.
• Choosing whether to allow pets may be in your control but if your insurer is not willing to cover pets you may not have a choice. Whilst accepting pets will have an impact on your booking rate it can also increase the chances of damage occurring and if you are not covered you will not be able to claim. 
• Personal items - It is obvious when an owner has taken the time to correctly decorate the property and show that it is loved but this does come with risk as each item in the property could be damaged at any time throughout the holiday let period. Make sure your insurance covers you for personal individual items. 

Public Liability Insurance

Whilst we do not expect anyone staying at your property to get injured it can never be guaranteed that injuries will not occur and without the correct public liability insurance you and your property will not be covered. Whilst not compulsory it is recommended to insure if the worst does happen you will not be left in the dark.  

Things to consider

• When selecting your insurance it is important to read the information carefully and ensure that it includes the correct cover for your property. If you are not specifically covered for stairs, hot tub or other standard practices in your property you will be left with no choice but to accept the charges should a claim arise. 

• Stairs - Unless on a single level, most properties will have stairs and for most people this is an everyday action that will not cause problems but as this is a new set of stairs for your guests there may be accidental injury due to the minor change in height of each step which causes them to trip and fall. 
• Hot tub / Swimming pool - It goes without saying that it’s obvious the attraction a hot tub or swimming pool adds to your property but there are very obvious risks to their use that should not ever be underestimated. A simple step to help mitigate the risks is to add a warning / instruction document to the hot tub or at the entrance of the swimming pool to inform people of the risk and the steps they should take to ensure safe use.