Holiday cottage mortgage

xma5

i am in the process of buying a cottage which will be a holiday cottage and will let out, any advice of which lenders to approach as i understand not all will consider this type of loan, i have been offered rates at low as 4.3% fixed for 2 years, this is via a broker not sure which lender this would be?

herbiesjp

are you raising the money to buy the cottage from your own property? May be not that clear.. are you re-mortgaging your current residential property to buy the cottage outright?

MarkyMarkD

That's not how I read it, herbies. Sounds to me like the OP wants a standalone mortgage on the new property with the facility to let it.

If I had the equity in my main property, I would suggest doing it the way you mention though, as it's likely the rate will be better.

xma5

I am not remortaging my own house, the holiday let is 220k an anticapte borrowing 150k the rest i have in the bank.

Ian_W

I was going to pose a similar question to xma5 in a few weeks time when I go looking so I might as well "piggy-back" on this now.

I could remortgage principal residence to raise the sum needed, equity & earnings are OK. Take the point about the rate but interest is tax deductable anyway as a business expense so, other than in a cash flow sense, a little bit above remort rates probably wouldn't make that much difference. BTW, I understand that any taxable loss on furnished holiday lets can be set against other taxed income - unlike normal BTL.

I just thought from an accounting & tax point of view it would make sense to keep them separate. Property we'd be after would be about £150k with a £90k deposit. Know [unless you advise different] that BTL isn't suitable, as it requires AST's and is based on rental yeild rather than income, which is more problematic with a holiday let.

Still think remortgage as best route? Or could mortgage be arranged on holiday cottage?

xma5

i understand from my accountant that that from the tax point of view the mortgage must be on the holiday property. and i have been offered 4.3% via a broker but not sure which lender this is with.

Ian_W

I got slightly different advice from mine, xma5. :rolleyes:
He said that used to be the case but the IR had now cottoned on to the fact that these types of loans generally had higher interest charges, therefore they were giving greater relief - ie costing the revenue more.
They will now apparently accept remortgages on your principal residence, if there is clear evidence that it is for capital raising to buy the property. That makes sense to me but we'd both better check before committing I guess.
Where are you looking to buy, BTW?

MarkyMarkD

xma5's accountant is advising him incorrectly.

It doesn't matter WHAT the loan to purchase the letting property is secured on. What matters is that it is a loan you require to purchase the letting property.

There's no problem at all with borrowing on your main residential property to buy a BTL property - and as mentioned earlier, it's likely to be cheaper to do so if you have the equity available.

IanW - you mention other than in a cash flow sense - what other sense is there? You are willingly going to pay a higher rate of interest, i.e. give away more of your own money. Just because something is a tax relievable expense doesn't mean it doesn't matter - 60% of an extra 0.50% (assuming you pay tax at 40%) is still an extra 0.30% per annum which is £300 on a £100k loan.

Ian_W

MarkyMarkD wrote: IanW - you mention other than in a cash flow sense - what other sense is there? You are willingly going to pay a higher rate of interest, i.e. give away more of your own money. Just because something is a tax relievable expense doesn't mean it doesn't matter - 60% of an extra 0.50% (assuming you pay tax at 40%) is still an extra 0.30% per annum which is £300 on a £100k loan.

:wall: Ouch!!! Slap taken.

However, in my defence xma5 did say he'd had a quote of 4.3% fixed for 2 yrs - though he didn't mention fees - which prompted that comment. This hardly differs from the best buy remort I]cheaper than many[/I rates and certainly wouldn't be 100's of pounds more on my projected 60k loan but I do take your point.

So your view is that remort, given we've got the earnings and the equity available, is the best route. Many thanks. :grouphug:

xma5

thanks for putting me stright will take up with the accountant, the 4.3% was via a broker and i would have to pay their fees, i do not think there are any catches.

MarkyMarkD

Is that 4.3% loan definitely available for this type of property? 4.3% sounds VERY cheap for BTL, and IanW has posted that BTL lenders won't lend on holiday property because they want to see a shorthold assured tenancy in place.