Latest / Host Planet: Airbnb, Holiday Let, and Vacation Rental Insights / Key Considerations For Holiday Let Investors

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Key Considerations For Holiday Let Investors · Host Planet: Airbnb, Holiday Let, and Vacation Rental Insights

• 0:00
  Welcome to the host Planet Mortgage podcast.
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  This series about holiday let mortgages is brought to you by
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  House Planet and HCH Financial Services.
• 0:08
  On today's show, we're going back to basics.
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  Our special guest is Ben Walker from House and Holiday Home
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  Mortgages and he'll be sharing three key tips that every
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  holiday let investor needs to know.
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  Ben, thank you for joining us on today's show.
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  You've got 3 tips that every holiday let investor needs to
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  hear, so take it away with tip #1.
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  Hi, James. Yeah, thanks for having me.
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  Really appreciate that. It's great to meet you.
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  So absolutely, let's look at holiday let properties, what
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  they are, what we need to kind of factor in before we even sort
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  of make that jump. Kind of first point I really
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  wanted to kind of stress and it's a step away from mortgages
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  and mortgage advice really. But you know, understanding and
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  getting real sort of clarity about ownership structure, the
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  ownership entity and the FHL guidelines furnished holiday
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  like guidelines is key when when sort of stepping into this into
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  this industry. I always say to my clients from
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  giving advice, go and speak to your financial advisor, go and
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  speak to a suitably qualified accounts.
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  And you know, it's, it's really important that you kind of set
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  yourself up from day one in the correct manner, you know,
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  because each person is individual and what may have
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  worked for somebody that you may know may be different for you.
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  And obviously what we're thinking about here ultimately
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  is, is the end game, which is, which is revenue.
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  You know, if you're going to have a holiday property, it's
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  there to bring you an income spread, you know, earn your
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  profit. And with that, with any earned
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  income, with any asset, with any sale of asset, purchase of
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  asset, you're looking at tax responsibilities.
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  And and this is where getting that advice is key.
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  You know, just to get that grounded and know where you
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  stand from a mortgage lenders perspective, you know, lenders
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  allow for property ownership under personal name.
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  So just like your residential kind of style property, or you
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  can go under the limited company option and this is where you'll
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  be a director of the company, but the actual entity of the
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  property itself is the owner and you draw your income from that
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  in a slightly different way. Yeah, there are pros and cons of
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  both approaches. It's going to depend entirely on
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  your personal circumstances. So what you say there about
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  talking to the experts? Absolutely, right.
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  And in relation to tax, we of course work closely here at Host
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  Planet with Zeal Tax and we'll put the links to their company
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  in the show notes. So if you if you want any advice
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  about FHL and the tax changes and capital allowances and
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  whether you should be set up in a limited company, those are the
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  guys to to speak to. But I, I think, you know, but
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  with, with any investment, Ben, it's just so important to, to do
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  your research and, and understand exactly what you're
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  letting yourself in for. And and that definitely doesn't
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  change with with holiday let's. Not at all.
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  Yeah, absolutely. It's crucial, you know, knowing
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  exactly where you stand, the abolition of the the tax regime
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  which came in in April this year.
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  And there's been a lot of changes, you know, recent
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  changes for furnished holiday let property owners or short
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  term let property owners on holiday, let whatever you want
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  to categorize them on, there's different terms.
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  There has been a lot of changes, especially coming into force
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  this year. So we've seen obviously we've
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  seen Scotland have a licensing arrangement for the last few
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  years, you know, so which meant it was difficult for mortgage
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  lenders to lend up and off the border.
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  England now has obviously brought in a new, well,
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  basically 100% council tax, doubling up for any second home.
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  So we're finding that this industry, this area is always
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  changing. So keeping up to speed, speaking
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  to the right people, getting your team on board that know
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  this area is absolutely key. It really is as well and you
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  have to be very considerate of the location that you're
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  investing. As you rightly say there in
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  Edinburgh is going to be different to Wales, is going to
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  be different to parts of England.
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  So yes, so important to do your research and and make sure that
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  you're prepared for exactly what your investment is, is going to
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  entail. OK then Ben, so that's number
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  one. What's tip #2?
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  OK, so you've identified your, your ownership structure, you
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  know, you've got an idea of how you're going to set up and you
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  want to make still make that step into short term length of
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  property. I suppose the next step is to
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  identify your property and what's suitable and not because
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  if we're going to be considering mortgage lending, we also need
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  to factor those guys in, OK, because what may be suitable for
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  you may not be suitable for a lender.
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  OK, So the vast majority of holiday let lenders are
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  residential lenders, OK. So I kind of always say, you
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  know, so just back to that in because ultimately what's
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  suitable for a mortgage lender is based on from a worst case
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  scenario, which is a weird thing to sort of look at or how they
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  look at it from a very kind of we're going to repossess the
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  property one day. They have to, you know, and, and
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  if they were to do that, they want to offload it quickly.
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  And if you're buying a very quirky property which not got
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  much resale ability, I suppose then yeah, that would probably
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  mean that mortgage lend wouldn't accept it.
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  So, yeah, remember that there are residential lender, look,
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  that's residential style properties.
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  I would say that would give you more lender options out there.
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  There are obviously lenders that will, you know, be a bit more
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  lenient and a bit more open to sort of interesting setups.
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  Ultimately, it's impossible to foresee all permutations until
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  you start getting mortgage applications submitted and
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  getting property valuations undertaken and the legal work is
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  going on and that's been solved. You know, the title is
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  acceptable. You'll never be 100% certain
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  going into it, but you know, speaking to your broker, you
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  know, there will be information available to kind of, you know,
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  give you guidance when when when going with lenders.
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  But some of the common concerns I see are with property are a
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  too close to commercial. OK, so you know what may be a
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  great holiday elect property on on a High Street in a in a
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  fantastic holiday town. You know, you'd be thinking,
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  yeah, that'd be great property for me to rent out, can make,
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  you know, great return. The mortgage lender would look
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  at that possibly and go that's, you know, we've got restaurants
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  next door, we've got bars downstairs.
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  You know, if we did have to take the property back in a
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  repossession, how you know, who would be how would we get rid of
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  that? It's not very remarkable.
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  So, you know, that's, that's one of those things to look out for,
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  you know, how close you are to commercial, especially food and
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  restaurants and bars. You know, that's quite difficult
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  for for any mortgage lenders to take on covenants, which are
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  title restrictions really. Again, counter intuitively, if a
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  property is holiday let only, you'd think that'd be perfect
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  for a holiday let purchase. But again, from a mortgage
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  lend's point of view, it, it means that it can only be 1 all
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  sold to one person. So again, you know, these kind
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  of restrictions can put off a lender.
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  So, you know, Ultimate, you know, there are only so many
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  lenders in this space. We've not got the likes of all
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  the High Street names that we all, you know, banks that we all
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  know. It's very much a growing pool,
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  but much restricted pool of lenders, mainly kind of regional
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  building societies. So yeah, we've cut, you know,
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  you don't want to limit yourself down to one or two lenders
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  really, because then you're possibly ending up paying sort
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  of, you know, over the odds, I suppose with regards to rates.
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  How common is it for a lender to reject a property as a holiday?
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  Let does it that occur quite often?
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  It can do evaluation stage, yes, I mean it, it really does depend
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  on the type of property you're looking at.
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  You know, I would say there is and like I said, you can't, you
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  can't see everything. But I'd say if you're
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  identifying properties and this at an early stage, try and go
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  for what would be more residential in style.
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  You know, it is what is the way I'd say.
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  So if you, if you've got a property with an annex or an
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  additional sort of outbuilding, again, that's that could be
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  another possible concern for a lender because they'd be
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  thinking, well, hang on a minute, you could be renting out
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  the main house, the one fucking, then you're going to be renting
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  out the annex to somebody else. Then you've got the cabin or
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  whatever in the garden, then you've got a campsite as well.
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  And that kind of multi use fucking kind of is bordering on
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  commercial, isn't it? So, you know, the holiday
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  lenders are, you know, really, really good at providing a
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  solution. Just just don't push the
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  boundaries is what I found. It's my advice.
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  Keep it vanilla. Keep it.
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  Keep. It vanilla, keep it normal.
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  All right then, Ben tip #3. OK, well, let's look at Arium 3,
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  which is obviously mortgage lenders and borrowing and
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  products, you know what's out there and what's available to
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  us. So you know, first thing to
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  factor in as the by as a investment property, you're
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  going to need to put significant deposit into this into this
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  arrangement like by to let 25% minimum deposit is is sort of
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  goes to number. There are lenders that will
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  stretch a little and possibly give you a 20% deposit is
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  allowable rates will obviously increase because of that.
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  So you've got to have your capital ready to invest into
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  this project. But then where do we get the
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  rest of that financed from? And mortgage affordability is
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  the exciting part here because this is where we've got so many
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  different lenders who approach lending and affordability in
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  different ways. OK, so the traditional way to
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  calculate how much you can borrow would be based on the AST
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  model, the the tenants tenancy model, you know, so you know,
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  this survey goes up, this property would take £1000 per
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  month, you know, it was rented out to a tenant, but that might
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  be fine. If there was a standard property
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  and it was more, you know, in the standard townish area maybe
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  or city area, then you know that that that rental figure might
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  stack up and get you what you need for the boring perspective.
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  But you know, we're looking at properties which can be a bit
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  more remote, a bit more rural, you know, and that vital that
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  demand isn't there then you know, those figures on that
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  valuation will not stack up. So holiday like lenders, some of
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  the holiday lenders have a different model completely where
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  they use a weekly forecast and what that is really is taking
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  that valuation away from the surveyor.
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  We're utilizing experience and expertise of a holiday like
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  managing agent. OK.
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  So you know, there are plenty of national UK sites out there, the
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  big boys that that kind of manage these properties and they
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  can actually give you an indication of the rental return
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  of that property if they were to manage it with those figures
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  myself, mortgage lenders, mortgage brokers, we can work
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  off that and achieve the borrowing if the figure stack
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  ups for what you need. Yeah, it's not just about, it's
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  not like a residential mortgage necessarily where it's based on
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  the applicant's salary. It's more looking at what this
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  property is going to earn as as a business, really as a as a
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  holiday LED business. Yeah, no, absolutely.
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  That's a really good point well made that James, because you
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  know, it's not, it's not really about your earning them at all.
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  You know, we're not going to be looking at the pay slip or
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  lend's, not really your pay slips or tax returns and saying
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  you can afford this mortgage for a holiday.
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  It needs to be stand alone. It needs to be self-sufficient
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  in, you know what would be called top slice in where you
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  were using your earned income to support affordability if you
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  were short isn't really an option with holiday let lenders.
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  Sometimes it's allowable to buy to let, but holiday let seems to
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  kind of keep itself very squeaky clean.
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  You know, this has got to be on its own and the weighted to kind
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  of determine that is utilizing these kind of figures from a
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  managing agent and then taking them to something like myself to
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  kind of work out which lender would work for you and how much
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  can you borrow. Fantastic.
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  So 3 great tips there around ownership and structure, the
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  property of course itself. Ben's advice there, keep it
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  vanilla and the the borrowing aspect.
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  So Ben, what are we seeing in terms of the, the best rates
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  around at the moment? What should people expect as a
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  as a mortgage rate for a holiday let right now?
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  Yeah. I mean, you know, looking today
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  at sort of rates, I mean there's a range.
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  I've identified a couple of products today which ever so
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  slightly just dipped back in with a #4 at the start.
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  So very high fours, you know, and I've got products that go
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  all the way to sort of 6 1/2, seven, 7 1/2%.
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  Now, obviously what you'll tend to see with holiday LED products
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  is you may get a nice low rate, but there'll be a significant
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  product fee to include on that or you can take the option with
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  a slightly higher rate and then the smaller product fee.
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  So there's a lot of that in the market.
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  And again, what you'll see is some of these higher rates are
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  out there. Obviously nobody wants to be
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  paying higher rates, but you'll find that those lenders that are
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  offering these higher rates may be the ones that are a bit more
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  flexible when it comes to the criteria point of view.
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  So I've got lenders who are offering holiday let mortgages,
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  you know, for people that have got zero employment income.
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  So it may be, but yes, you're not in the job, you know, you
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  may be, you know, just I don't even miss living at home with
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  parents. You know, you're not you're not
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  actually an owner occupier, but you can still, you know, take
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  that step into holiday let's and short term property and apply
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  for mortgages successfully using these lenders, you know, because
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  they're all trying to, you know, fit into spaces where other
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  lenders don't fit. Interesting.
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  Yeah, interesting there. If you've, if you've got the
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  deposit, then you can get going with holiday letting because it
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  should be a business that that more than covers the the
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  expenses. So there are there are
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  opportunities out there, Ben, if people want to get in touch with
• 15:55
  you, where can they find you? Yeah, house and holiday home
• 15:58
  mortgages, You know, there's a team of us advisors.
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  I'm actually based down in Chepstow.
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  You know, I'll put my details and links over to you so you can
• 16:09
  kind of share them. That'd be great.
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  But you know, any inquiries, any questions, anyone, anything
• 16:14
  anyone wants to ask me, then yeah, feel free to get in touch.
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  Sounds good. We'll put your e-mail address in
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  the show notes. Ben.
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  It's been a real pleasure. Thanks for joining us on the
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  House Planet Mortgage podcast. Fantastic James, really
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  appreciate it. All right, that's a wrap on
• 16:28
  today's House Planet Mortgage podcast.
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  My thanks to Ben for sharing his top three tips.
• 16:33
  If you need any mortgage support, get in touch with HCH
• 16:35
  Financial Services. Their team of award-winning
• 16:38
  brokers provide an unrivaled service whether you're looking
• 16:41
  for your first holiday let loan, a remortgage or a financial
• 16:44
  products like life insurance or will writing.
• 16:47
  The team can also help you secure a range of other products
• 16:50
  including residential buy to let expats and HMO mortgages along
• 16:54
  with bridging finance announce an equity release.
• 16:56
  To get in touch with the team, call O 3331234536 or e-mail
• 17:02
  advice@hfs.com. You can also visit the website
• 17:07
  for further details. hfs.com. That's it for today.
• 17:11
  Until next time, happy hosting.