Q My partner and I are buying a second home to use as a holiday home. He’s a first-time buyer but I’m not as I own the flat that we currently live in. We are hoping to buy a flat at the Kent seaside to be used as a holiday home for ourselves – think Monday to Friday in London, then the weekends by the sea – and potentially rent it out as a furnished holiday let when we’re not using it. We’re not looking to have it as a big source of income but just to potentially offset some of the costs of having a second home.
Where I’m having trouble is deciding what type of mortgage to get. Residential mortgages don’t allow even short-term lets and buy-to-lets don’t allow you to live there. For tax purposes, we would not be letting it often enough to meet the furnished holiday let requirements, so would that mean a holiday let mortgage is not suitable either?
ET
A No, it doesn’t mean that because a holiday let mortgage is exactly what you are looking for, according to unbiased.co.uk, which is the place to go to find an independent financial adviser. “If you want to buy a holiday home for yourself but also let it out when you are not using it, you need a holiday let mortgage,” the website says. Although growing in popularity, holiday let mortgages are still something of a niche product available from fewer than 20 mortgage lenders. As with most niche mortgages, it makes sense to get the help of a whole-of-market mortgage broker who knows the lenders that offer the kind of holiday let mortgage suitable for you.
Most holiday let mortgages expect you to be able to put down a deposit of at least 25% on a property, to generate rental income of at least 125% to 145% of the interest payable on the mortgage and to have a minimum income of between £20,000 and £40,000 in addition to any rental income. However, lenders differ in how they view rentals marketed through Airbnb. Some allow Airbnb rentals, others require you to use a holiday lettings agency. The amount of time you can spend at the property also differs. At Teachers Building Society, for example, you can use your property for up to two months in any 12-month period, while at Hodge Bank you can stay in your holiday home for up to 90 days.
As you are aware, the advantage of having a furnished holiday let is that – unlike with a buy-to-let mortgage – you can offset the whole of the mortgage interest against the rental income provided the property is let as holiday accommodation for at least 105 days in a 210-day period. So because you plan to let your holiday home for fewer days than 105, you’ll have to pay income tax on the whole of your rental income. Buying a second home also means paying stamp duty land tax at the standard-plus-three-percentage-points rate.
