Learn the behind the scenes of owning a holiday home from the different mortgage methods to the insurance must knows once you have your holiday home.
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:
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 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:
Content Insurance covers personal belongings such as furniture & appliances if lost, damaged or stolen.
Things to consider:
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
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