Holiday let considerations
Although there are many advantages to buying a holiday let property, there are some things that you should consider beforehand:
Your current mortgage situation
It’s likely that you will already have a mortgage on the house that you live in. It can often be more difficult to get a second mortgage if you haven’t already paid off your first. If you can manage to get approval, your current mortgage can also make a huge difference in the amount you can borrow on a second property.
The location of the property you are looking to buy can also impact to your holiday let mortgage application. Many lenders consider mortgages on properties abroad to be a much higher risk in comparison to those within the UK. This is due to it being more difficult to find tenants to provide the rental income for the mortgage. Additionally, there are other potential risks with holiday lets abroad such as the unfamiliar property market and unexpected changes in foreign currencies and laws.
Your financial situation plays the biggest role in your mortgage application, especially when you are looking to have two mortgages. Lenders will look at your monthly income and spend to ensure that you can realistically afford to pay two mortgages. They will also consider your salary without the potential rental income. This is to assess whether you will be able to afford the monthly repayments if the house is left vacant. Above all, lenders will look at your credit rating and check whether you have successfully paid back any previous loans. Defaults on payments or other implications that have left you with a poor credit rating could impact your chances of getting a mortgage on any second home.
Please note that if you have a history of bad credit, taking out a mortgage might not be the best option for you.
Holiday let vs second home
A holiday let is different to a second home – or holiday home – as the latter mostly describes a property that you or close relatives use from time to time, rather than renting to third parties. If you are looking for a mortgage on a second property that is for your use then you should have a look at second home mortgage options instead.
Holiday let vs buy to let mortgage
Unlike a buy to let property, a holiday let is likely to have multiple occupants throughout the year with each of them staying for a short time period while they are on holiday. Mortgage lenders often consider this to be a higher risk than a buy to let. This is because you have less control of who is using your property.
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Why Clever Mortgages?
At Clever Mortgages we can offer you the support and advice required to ensure you get the right mortgage for your first home. We provide access to a comprehensive range of mortgages from across the market. We are also authorised and regulated by the Financial Conduct Authority (FCA) and adhere to the Treating Customers Fairly (TCF) guidelines, so you can be confident that we will treat you with integrity and only recommend products that meet your needs.
A fixed rate mortgage is where your interest rate stays the same for a set time period (usually between 2-10 years). As a result your repayments are exactly the same each month, regardless of what happens to other mortgage rates. These types of mortgages are popular with first time buyers and people looking to budget each month, especially those who have suffered from a poor credit history.
The main downside to a fixed rate mortgage is that if mortgage rates go down you can be paying a higher amount than you would on a variable rate mortgage. However, this can also go in your favour and if interest rates increase you can be paying less than you would on a variable rate.
Every lender will have their own standard variable rate (SVR), which is considered their basic mortgage. This interest rate goes up and down, usually in line with the Bank of England’s interest rates but the lender is free to raise this at any time.
This means that your monthly payments can go up or down depending on what the interest rate is at a given time. Some months you could be paying more whilst other months you could be paying much less.
A discount mortgage is when a reduction is applied to the lenders Standard Variable Rate (SVR) for a certain length of time (typically 2-3 years). Discount mortgages are attractive as they can allow you to pay slightly less than the bank's standard rate. However as the SVR can still fluctuate they are not ideal for people who are looking to stick to a strict long term budget.
A tracker mortgage is basically a type of variable rate mortgage. What makes them different from other variable rate mortgages is that they follow – track – movements of another rate, the most common rate that is tracked is the Bank of England Base Rate.
A capped mortgage is the same as a variable rate mortgage; however the interest rate can never rise above a set “cap”. These mortgages can work well for people who can budget for different mortgage repayments each month but want the reassurance that their payments will never go above a certain amount.
Offset mortgages are linked to a savings account as well as your current account. Your savings will be 'offset' against the value of your mortgage, and you'll only pay interest on your mortgage balance minus your savings balance. These types of mortgages work well for higher earners or people who have a good amount in savings that they want to use towards paying their mortgage.