Q We are two women who are nearing our mid-60s and won’t get our state pensions until we are 66. I work in schools and earn very little while my partner is a graphic designer who now has very little work.
On the plus side, over the years we have invested in some buy-to-let properties and are lucky enough to enjoy great relationships with our tenants. We also have a furnished holiday let and are planning to buy another. We have had an offer accepted on the property in question but because it went to sealed bids, we ended up offering rather more than we should have. So we’re now trying to find a mortgage with a low interest rate before I stop work next year and am unable to get a mortgage of any sort.
We have been offered one by our mortgage broker but the rate is quite high. The rates for buy-to-let mortgages are much lower but the tax incentives for furnished holiday lets are better. If we took out a buy-to-let mortgage could we then rent the house out as a holiday let?
A To answer your last question first, no you couldn’t. Buy-to let mortgage conditions usually specify that the property is inhabited by the same tenant(s) under an assured shorthold tenancy for the duration of the tenancy. This is the opposite of a holiday property let to a lot of different tenants (aka holidaymakers) for two weeks or so at a time. And in the words of specialist independent brokers holidayletmortgages.co.uk “using a buy-to-let mortgage for holiday letting, without the express permission of the lender, constitutes a breach of mortgage conditions, which can have serious consequences including forced redemption of the mortgage and damage to your credit rating”.
Equally inadvisable is choosing to invest in a furnished holiday let rather than a buy-to-let purely on the basis of tax treatment. It is true that, with a furnished holiday let you can still deduct mortgage interest payments from rental income which, since April 2020, buy-to-let landlords can no longer do. However, this is only if your furnished holiday let is available to the public for a minimum of 210 days a year and actually let for at least 105 days a year.
Mortgage interest isn’t the only thing you need to take into account when assessing the pros and cons of each type of ownership. The costs of running a holiday let tend to be higher because of the turnover of tenants and the chances of getting a mortgage of more than 60% to 75% of the value of the property are lower than with a buy-to-let mortgage. So you’ll need to find more cash to put towards the purchase of a furnished holiday let than you would with a buy-to-let property. There’s also the fact that – as the tax rules recognise – a holiday let generates income for a limited time whereas a buy-to-let property has the potential to earn money for entire years at a time.
Iif you are determined to go down the furnished holiday let route and you are equally determined to find a lower mortgage rate, I suggest you switch to an independent broker that specialises in holiday let mortgages.