Holiday home mortgage

JoeyLouy

Hi MSE community
I'm looking for some advice and having read other posts, i think i might get some help here.
I am looking to purchase a holiday home / second home in Shropshire, it will primarily be for our own use at weekends to escape the city and be close to my family, but we are aware that to cover the extra mortgage and expenses, we may need to rent it out as a holiday let for a few weeks each year.
The property value will be between £100k and £120k.
We have a property that has been valued by 3 agents (lowest valuation £275k) with an outstanding mortgage of £134k.
Our current mortgage provider will not lend on holiday homes and have advised that using their calculator our property value is £230k - therefore we do not have enough equity to pay for the holiday home outright.
I am not sure what to do next - should i check out alternative mortgage providers for our current mortgage to see if they value our property higher (or will they all use the same calculation?)
If we need to get a 2nd mortgage for the holiday home, can anyone recommend a lender who will not charge the earth for holiday home mortages please?
Hope someone can help
Jo

bigadaj

If you want this as a formal holiday let then the requirements have been increased recently if I is for commercial letting, think it has to be available for letting for 30 weeks and let at least 12weeks, figures may not be correct but are not far out. If you Just let for a few weeks then it won't be treated as a business, so you would have to find the purchase out of your own income, So as Long as you have an income of over 60k it would be possible with no other commitments and don't forget the purchase costs. Broker would be worth speaking to, alternatively you can try other lenders to see if they would value your house higher and so fund, looks tight though.

Don't forget the costs of running a second home, insurance could be tricky if it is unoccupied for ant long periods.

Thrugelmir

From April new rules apply. Must be let for a minimum of 15 weeks (105) days and also must be advertised as being for let for 210 days.

The rent must be at market rates.

silvercar

Thrugelmir wrote: »

From April new rules apply. Must be let for a minimum of 15 weeks (105) days and also must be advertised as being for let for 210 days.

The rent must be at market rates.

I assume this is only for tax purposes ie for the property to qualify as a holiday let, which would mean any profit on the rental would be allowed to be set off against earned income.

AFAIK there is nothing to stop you renting out a property for less time and/ or at lower rates, just that you won't be able to set any profit against earned income only combine it with other "unearned" income.

Thrugelmir

silvercar wrote: »

I assume this is only for tax purposes ie for the property to qualify as a holiday let, which would mean any profit on the rental would be allowed to be set off against earned income.

There's no offset against earned income. Which is why rules have been tightened up. Losses can only be offset from income from a similar source now.

Makes the idea of second home\holiday let far less attractive than previously.

silvercar

Thrugelmir wrote: »

There's no offset against earned income. Which is why rules have been tightened up. Losses can only be offset from income from a similar source now.

Makes the idea of second home\holiday let far less attractive than previously.

Not quite true, see here:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017930

In particular,

"Tax advantages of furnished holiday lettings

There may be a tax advantage if your property qualifies as a furnished holiday letting and either of the following applies:

you make a loss on your rental income

you sell or 'otherwise dispose' of the property

If you make a loss
If your business is run on a commercial basis any loss can be offset against your other income, not just the property income, reducing your overall tax bill. Or you can carry the loss forward and offset it against future letting profits."

So for properties that do qualify (as furnished holiday lettings) you can offset losses against other income.

For properties that don't qualify you can only put losses against other property income from abroad AIUI.

There was talk of changing the rules, see this from futrther down the same page:

"Changes to the furnished holiday letting rules
The 2009 Budget announced an intention to withdraw these rules from 6 April 2010 for Income Tax and Capital Gains Tax. For Corporation Tax the date was 1 April 2010.
The June 2010 Emergency Budget announced that the change won't take place now and the rules will continue to apply."

The point I was making was that there is nothing illegal about letting a property that doesn't fall within these rules eg letting at a cheap rate to mates or for longer than 31 days, it just means that the tax treatment is less generous.

JoeyLouy

Thanks Silvercar - your advise has been very useful