Income from renting holiday homes can be huge.

Holiday homes exempt from cuts to Buy to Let tax breaks

With George Osborne having clamped down on the ‘buy to let’ boom through his huge cuts to the property tax breaks, holiday houses are emerging as a new nest egg for those looking to supplement their income through property. While from 2020, landlords will no longer be able to deduct their mortgage interest from their rental income when calculating the tax due, holiday homes will be exempt from this tax raid. And, if bought in the right area, a holiday home can command up to three times the annual income of a buy-to-let, according to specialist broker Holiday Let Mortgages.

Income from renting holiday homes can be huge

To put that into context, renting out a two-bedroom cottage to holidaymakers can generate a staggering income of between £12,000 and £15,000 a year, according to letting agents. And this is just the tip of the iceberg – bigger properties could average up to £30,000 a year gross, which should be more than enough to fund some lavish holidays for any potential holiday letting landlords themselves!

It may be difficult to secure a holiday home mortgage

Experts warn, however, that while there may be a surge of interest in the holiday rental market, prospective entrants should be aware it can be difficult to secure a mortgage on a rental property, with purpose built homes being the worst hit. Director at property group Savills, Jonathan Cunliffe, told the Daily Telegraph:“It is very difficult, if not impossible, to get a mortgage on a property you want to use as a holiday let.”

“We were recently asked to sell a new holiday development, but I turned it down. You cannot sell those properties, because buyers cannot raise finance, whereas they would have been able to a few years ago.”

Potential landlords should take heart. While larger financial institutions are shying away from holiday-let mortgages, research has shown that smaller building societies are more eager to lend and are thus prepared to look at properties on a case-by-case basis, rather than writing them off on concept. Properties that tend to be more successful in securing both mortgages and a healthy return for investors tend to follow the usual golden rules of the property game:

Location, location, location

Although property in holiday hotspots like Cornwall, Devon or the Lake District will be more expensive, you pay the extra tariff for a reason. These areas remain popular with the young family market and are in demand throughout the season.

Good reputation

It may be worth considering a home that is already being used as a seasonal rental property. Homes that are already established as holiday lets tend to be easier to secure financing on, as they already have a proven track record. You can also capitalise on their existing clientele.

Small but perfectly formed

When seeking finance, try a smaller building society who may be more open minded. A good mortgage broker, specialising in holiday lets, should be able to help you pinpoint a sympathetic lender.

Work around it

Remember, if you’re unable to secure a mortgage on a holiday let, you always have the option of re-mortgaging your primary residence to secure the funding. Using your main home as collateral can be a frightening strategy, but if you genuinely believe your holiday home will be a money earner, this is one way to make it happen.

Consider a conversion on your own property

If all else fails, you could always consider transforming a space on your own property. Outbuildings or stables on existing land can be converted very sympathetically. They also have the benefit of being on-site, ensuring you know the area and can keep a close eye on the property and its inhabitants, while still reaping the rewards—and the tax breaks—of being a holiday landlord.

Running a holiday let is treated by HM Revenue & Customs (HMRC) in the same way as any trading business, so losses can be carried forward and offset against future profits. To qualify for furnished holiday-let tax treatment, the property must be available for letting 210 days-a-year and actually let for 105 days. If you have more than one property, occupancy can be averaged to qualify.

This is a blog post from Fixflo. Choose Fixflo for your property management software. “Simply The Best Way For You To Manage Repairs“.


Alex Evans

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