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With uncertainty surrounding Covid-19 and fears of being stranded abroad weighing high in the mind of travellers, ‘staycation’ remains the holiday of choice for many driving unprecedented growth in the holiday buy to let market. Dan Atkinson, Head of Intermediaries, at the Melton Building Society answers some of the questions most frequently asked by brokers:
How does a holiday buy to let mortgage differ from a standard buy to let?
The main difference is due to the high turnover of tenants in holiday properties, an assured shorthold tenancy agreement is not required for a holiday buy to let mortgage. Holiday lets are designed for people who are looking to buy a property that will be let out on a short-term basis to tourists as a business. The great thing about a holiday let is that landlords can typically/often attract a higher rental income than they could on a standard rental property, provided they can also achieve high occupancy levels.
Can the landlord holiday in the property?
Yes – as long as they do not occupy the property for more than 40% of the time.
How is affordability assessed?
Generally with existing holiday lets, lenders will look at the rental history of the property and use this income to calculate how much they’ll lend. For new holiday lets, lenders will seek expertise from local valuers to give an indication of potential income over a year. At the Melton, we take an average of low, medium and high seasonal data using 80% as a maximum occupancy rate with a lower ICR than our standard products of 130% of the mortgage payment calculated at a stressed rate of 5.5%.
What are the tax benefits?
As a holiday let is currently classed as a business rather than an investment, landlords can deduct all expenses relating to furnishing the property from the rental income before they are assessed for tax. That includes the interest payments on their mortgage.
We always recommend you advise your clients to seek professional advice from a tax advisor.
Holiday Lets from the Melton
The Melton offers a holiday buy to let mortgages up to 75% LTV. The Society’s broker website features a buy to let hub which includes lots of useful information about our holiday buy to let proposition and lending criteria, together with a handy buy to let calculator which enables you to calculate the maximum loan amount your customer may be eligible for, or to determine the rental income required based on the requested loan amount.
The hub also includes all the documents and information you need to submit your applications to us. Take a look at the Melton’s Buy to Let Hub here: www.themeltonbrokers.co.uk/buy-to-let-hub/