In order to answer the question it might be helpful to start by looking at the similarities between holiday let mortgages and buy to let – or BTL – mortgages.
The similarities – property investment
Holiday home mortgages and mortgages for buy to let landlords are both forms of property investment – typically medium to long-term.
The principle is the same – a property is bought with the aim of letting it out, hopefully with a view to profit from rental income after mortgage repayments and other running costs have been deducted. In both cases, of course, this depends on the property being let.
In either case, therefore, you might not make a profit on your investment if tenants or holidaymakers cannot be found or if the rent they are prepared to pay is insufficient to meet your mortgage and other running costs.
As with any such investment, the value of property may go down as well as up. As the government backed Money Advice Service points out, if you need to sell the property and the proceeds do not cover the amount of the outstanding mortgage, you need to find that difference from your own pocket – whether you are selling a buy to let property or a holiday home.
The differences – long stay or short stay
The crucial difference between holiday home mortgages and buy to let mortgages is just that – the former loans are advanced for the purchase of a holiday home, the latter for the purchase of a buy to let property.
The difference is crucial since it determines the way in which the mortgage lender calculates the income needed to cover the maximum amount of the mortgage loan advanced.
With respect to a buy to let mortgage, for instance, the lender may reasonably expect the landlord to let the property to tenants on a more or less permanent basis – even though the tenancy is most commonly described as an Assured Shorthold Tenancy (AST). There may be “voids” during those periods when one set of tenants are leaving and another set moving in, but the landlord is likely to be aiming for more or less continuous occupation of his buy to let property.
The mortgage lender’s calculation of the buy to let business income, therefore, is based on the prevailing market rate for rents in the given location of the let property. This valuation is reasonably straight forward and may be assessed with some accuracy by the lender’s valuer.
In the case of holiday lets, however, the property is likely to be let for only one to three weeks at a time and may not be continuously occupied the whole year round. Weekly rental income, on the other hand, is likely to far exceed that achieved by the landlord of buy to let property.
The calculation of the holiday home owner’s annual rental income, therefore, is typically far more complicated and accurate valuation calls for particular skill and expertise. It is this skill and expertise that is demonstrated by only those mortgage lenders making a particular business of advancing loans for the purchase of holiday homes.
Finding and identifying such specialist holiday home mortgage lenders may itself call for the experience and expertise of a mortgage broker specialising in these particular types of loan.