Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Email in, and we will get one of our experts to reply. Nick Mendes, mortgage technical manager at John Charcol, has given his advice to a reader below. If you have a question for our experts, email us at money@theipaper.com.
Question: My husband and I are looking at buying a holiday home in Pembrokeshire, around £280,000, that our family would use several times a year, mainly school holidays. We would like to let it out for the rest of the year, maybe 15 to 20 weeks, to help cover the mortgage and running costs. We already have a £310,000 residential mortgage on our main home with about seven years left. Would we be able to get a mortgage on the holiday home given we would only be renting it out part of the time? Does letting it change what type of mortgage we need, and would occasional letting be treated differently to running it as a full holiday let?
Answer: The starting point is how the property will be used because that is what determines the type of mortgage a lender is likely to consider.
A holiday home used purely by you and your family may be treated as a second residential property. That does not make it impossible to mortgage, but it does mean the lender will assess the new borrowing alongside your existing mortgage, household bills, debts and other commitments.
That affordability test can be tighter than people expect. With a £310,000 mortgage already on your main home, a lender will want to see that both commitments comfortably fit your income together, not just the new one in isolation, including the running costs that come with a second home, such as council tax, insurance, utilities and maintenance.
The lender may also want to be comfortable that the property is genuinely for your own use. If the intention is mainly to generate rental income, a standard residential mortgage is unlikely to be the right home for it.
Now on to the letting element. Some lenders may allow occasional letting on a second home, but usually only with their consent and within strict limits. Where the property is intended to be let for a meaningful part of the year, many lenders will treat it as a holiday let rather than a second home.
15 to 20 weeks a year, as you are describing, sits closer to a proper holiday let than the occasional week a lender might wave through on a residential second home. If letting is genuinely part of the plan from the outset, you are more likely to need a specialist holiday let mortgage rather than trying to stretch a residential one to cover it.
That is not quite the same as a normal buy-to-let mortgage. Holiday let lenders look at the expected rental income, likely occupancy levels, the property’s location and how many weeks a year it will be available to rent, and many also want a minimum personal income in the background, since holiday let income can be seasonal and less predictable.
Deposit requirements tend to be higher too, typically 25 per cent of the property’s value or more. Lenders vary on the detail: some cap how many weeks a year you can use the property yourself before it stops counting as a holiday let, while others set a minimum number of letting weeks needed to qualify at all.
A property that looks affordable on summer rental figures may not look the same once quieter months, cleaning costs, management fees and periods without bookings are factored in.
The property itself also matters. Lenders can be more cautious with unusual construction, flats above commercial premises, properties with occupancy restrictions, holiday parks, remote locations or homes that may be harder to resell. A popular holiday area can help, but it does not override the lender’s normal checks.
This is where borrowers can go wrong. They start with the rate when they should start with the use of the property. A residential second-home mortgage may be cheaper on paper, but if the property is really going to operate as a holiday let, that mismatch is not worth the risk.
My practical advice would be to decide honestly at the beginning whether this is mainly a second home with occasional letting, or a commercial-style holiday let with personal use around that. Given the number of weeks you are describing, it is worth going into this assuming the latter.
A broker would then check which lenders are comfortable with that set-up before you apply, looking not just at the headline rate, but at the lender’s rules on personal use, letting periods, rental income, property type and affordability. It is also worth speaking to an accountant before you commit, because the tax treatment of furnished holiday lets has changed and the old advantages no longer apply in the same way.
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