Short Term Lets
Morgan Stewart returns to The Mortgage and Protection Podcast to talk all about Short Term Let Mortgages.
What are Short Term Let Mortgages?
Short Term Let Mortgages give you the ability to let your property out on a short term basis. With a Buy to Let mortgage, the lenders request that you have a minimum of a six or twelve month tenancy agreement so that you’ve got a long term rental income. With a holiday or Short Term Let Mortgage, the property is usually left empty for a night or a week at a time, so they involve very different letting procedures.
Staycations are becoming more popular, so are Short Term Let Mortgages becoming more frequent?
Yes, people tend to ‘staycation’, or holiday in the UK now, so lenders have increased the availability of Short Term Let Mortgages over the past 18 months. You can see the effects best in those popular holiday destinations, such as Cornwall, which had one of his largest price rises. There’s a lot of interest in holiday living and Short Term Lets.
What’s the difference between a Buy to Let and a Short Term Let?
Basically, the only difference is that with the Short Term Let you have the ability to let the property out on a short term basis.
Should I invest in a Short Term Let or a residential Buy to Let?
That would depend on your personal investment strategy. You can make more money from a holiday let property, but you also have more work to do. There will need to be cleaners for each changeover, and you need to look after your guests when they’re there. It’s more of a hands on involved strategy, more of a business type approach. Whereas with a buy to Let, you can just let the property out to a family and forget about it.
Is it hard to get a Short Term Let Mortgage?
It’s a lot easier than it was as there are a lot more lenders offering this kind of mortgage, especially in the past eight months. It was generally only building societies offering holiday lets in the past, and they were quite stringent with their criteria, but these days, a lot of the lenders have moved into the market.
How much can I borrow on a Short Term Let Mortgage?
The general rule is 75% of the value of the house, meaning you need to put down a deposit of 25%. The affordability of the loan is slightly different with every lender. All lenders have a different way of assessing the income, some will do it on a holiday basis, and they will do it on 48 weeks of the year, and they will go on a low, medium or high rent, others will just take the tenancy rent as the income, which can make a difference, because you do need that extra income to help you get the loan amount that you need.
Do you pay stamp duty on a Short Term Let?
Yes, you do. There’s no difference in the Stamp Duty regime for Short Term Lets.
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What are the tax benefits of a Short Term Let?
There are tax benefits. I’m not a regulated tax adviser, so you need to source tax advice from elsewhere, but you can still use your wear and tear allowance, which was removed for buy to Let landlords.
How much does the Short Term Mortgage cost?
The average rates are about 3.5% at the moment, and the fees and the costs are comparable to a Buy to Let mortgage. So you will need to pay survey fees, lender fees, solicitor fees and Stamp Duty. But added costs will be furnishings because you’re providing a furnished holiday, cleaning fees and management fees.
Management fees for a holiday let will be considerably more than if it was just a letting agent for a Buy to Let. There are also fees for advertising costs, so if you use Airbnb, Booking.com, and other online platforms, they’re all going to be charging you fees.
What is the lending criteria?
Every lender is different. In the past, you would need a minimum income of around £40,000, but these days this is a popular investment strategy, so some lenders offer this type of mortgage with no minimum income or on a limited company basis.
How do I go about applying for a short term mortgage?
At GPS we’ll help you through the process. At the initial consultation we determine the client’s circumstances, which helps us to decide which lender would be more likely to accept their circumstances.
It can be a very successful investment strategy, but it is more like a business rather than investment because you will be hands on. You need to have the right support structures in place, for example having people checked in and checked out, a good vetting process, a good agent and good cleaning.