Short-term holiday lets are becoming increasingly popular as a way for landlords to generate an income, but it’s important to weigh up the pros and cons carefully first.
Holiday lets can be very lucrative, particularly if the property is in a seaside location or is near to popular tourist attractions. They often bring in much higher rents than properties let longer-term, with listings sites like Airbnb making it easier than ever before for owners to market either a room or a whole home.
Holiday let tax benefits
Part of the appeal of holiday lets is that their tax treatment is more favourable than standard buy-to-let properties.
Furnished holiday lets are treated as businesses, which means they can benefit from tax relief on mortgage interest. With conventional buy-to-let properties, relief on mortgage interest is gradually being reduced over time and will eventually only be available at the basic rate of tax.
Prepare for void periods and more admin
If you are considering letting out a holiday home, make sure you’ve got a cash buffer in place to cover mortgage costs when there are void periods. As holiday lets are seasonal, there may be several months when the property is sitting empty.
Bear in mind too that there’ll also be more admin to sort out with holiday lets. For example, owners must arrange for the property to be cleaned each time somebody leaves and will have to keep careful records of every time the property is let out. Marketing your holiday home also adds to bills, so owners may end up facing steeper costs than they would with a standard buy-to-let property.
Mortgage options for holiday lets
Mortgage options for holiday lets are more limited than for standard buy-to-lets. Many lenders restrict buy-to-let mortgages to properties which are let on assured shorthold tenancies (ASTs) of between 6 and 12 months, although some now consider longer agreements too.
Holiday lets typically run for just a few days to a fortnight, so cannot be let on an AST basis and therefore won’t meet many buy-to-let lenders’ criteria.
If you have a standard residential mortgage and want to rent out your property as a holiday let, you will have to let your lender know and ask for their consent, which there are no guarantees they will give.
The good news is there are lenders who are happy to consider holiday lets, often smaller building societies which tend to take a more flexible approach to underwriting. For example, lenders that will look at holiday lets include Leeds Building Society, Principality Building Society, Tipton Building Society and, more recently Mansfield Building Society.
When assessing holiday let mortgage applications, lenders will often focus on how much overall income the property can generate. They will usually only deal with properties which are standard homes and therefore won’t normally lend on holiday park homes as they have limited usage.
Using Airbnb has become a popular way for homeowners to make some extra money, but must be approached with caution.
Again if you have a residential mortgage you must tell your lender and obtain permission before letting out even one room in your property. Even if consent is given, lenders will typically prefer a longer-term let to a very short-term Airbnb style let. If you don’t tell your lender, it will be considered a breach of your mortgage contract.
Those looking for a holiday let mortgage will also find that fewer lenders are currently open to the idea of Airbnb.
The tax situation is more complicated, and will depend on how much of the property you plan to let. It’s a good idea to speak to a tax specialist before going ahead.
If you’re not sure which lenders can help, or which mortgage deals you may be eligible for, seek professional advice.
Growing popularity of holiday lets