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The Rise of Holiday Homes vs. Buy-to-Let Mortgages

With a rise in staycation tourism, many people looking to top-up their wages or pensions are investing in holiday homes, with the number of people choosing a self-catering holiday in the UK rising from 6.22 million to 7.23 million between 2015 and 2017 alone. With the recent fall in the value of the pound due to Brexit uncertainty and coronavirus panic, the holiday home market is set to increase further in popularity – but why are holiday homes becoming more popular than buy-to-let mortgages?

Posted: 31st March 2020 by
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Choosing a holiday home

A holiday home acts as not only a great source of income but is a second home for you and your loved ones. Due to the high turnover of tenants in holiday homes, short stays are the key selling point that attracts visitors to staycations. Due to this, holiday homeowners can expect to earn £22,000 on average per year[1] according to one report, and even more during peak times and in sought-after holiday locations, such as luxury Lake District cottages that are extremely popular among walkers and outdoorsy travellers, among other picturesque holiday hotspots.

A holiday home must be available for letting as a furnished holiday home for at least 210 days per year. This leaves a third of the year (22 weeks) for you to enjoy, refurbish or renovate your holiday home. Many holiday home letters choose to keep it on the market all year round, particularly during peak times, and block out weeks to enjoy their own holiday there, which can be a bonus of choosing this mortgage type.

Not only this, but holiday homes are entitled to tax relief. Some of these benefits include claims for Capital Gains Tax reliefs for traders, entitlement to plant and machinery capital allowances for items such as furniture, equipment and fixtures and profits from your holiday home earnings counting towards pension purposes.

Buy-to-let is appealing to more buyers due to the low-interest rates for savings and strong demand for rental properties from young people who are struggling to get onto the property ladder themselves.

Buy-to-let mortgage

Buy-to-let (BTL) mortgages are a great investment for those who wish to own a property and rent it out for additional income for long-term tenants rather than as a place to live. The rules around BTLs are similar to a regular mortgage, however, several key differences should be considered if a buy-to-let property interests you. Buy-to-let is appealing to more buyers due to the low-interest rates for savings and strong demand for rental properties from young people who are struggling to get onto the property ladder themselves.

However, some points to consider before choosing between a holiday home and buy-to-let are:

  • The fees tend to be much higher – most mortgages for buy-to-lets require deposits of between 25% and 40%
  • Interest rates on buy-to-let mortgages are usually higher
  • Most BTL mortgages are interest-only and you must repay the original loan in full

Why are holiday homes on the rise?

Holiday homes have many positives pushing their favourability, such as ROI and growing staycation popularity. In addition to this, holiday homes can be rented out for far more money than you could a normal rental property due to the high turnover. This means that over the year you could generate a much bigger income depending on the amount of business taken on, leaving a holiday home much more flexible than a buy-to-let mortgage.

Furnished holiday lets are also taxed differently than buy-to-lets. They are classed as a business which means you can still claim tax relief on mortgage interest which is appealing to the mass market. In contrast, that relief is being reduced on buy-to-let properties, which is something to consider within the ever-changing market.


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