November 11, 2017 in Introduce yourself
Option 1 is always going to be the easiest way and as I understand it (I'm not an accountant), as long as you can demonstrate that you took out the loan against your house for the sole purpose of buying the holiday let, then you'll be able to offset the interest. A loan for business purposes is a loan for business purposes, no matter what it's secured against.
Option 2 - there are surprisingly few holiday let mortgages around. The two I looked at were Leeds BS and Cumberland BS. Leeds calculates affordability based on what the property would rent for each month as a standard buy-to-let, whereas Cumberland requires either the accounts (if it's already being run as a holiday let) or a letter from a holiday letting agency stating what they would expect it to let for. But yes, interest rates are higher and loan-to-value is lower.
I'm in the same boat as you with my other half being a higher rate tax payer and my accountant has advised that I can take 100% of the income in my name, despite owning the cottage jointly, as there is a significant element of running a business involved with holiday lets and I'll be the one doing all the changeovers, dealing with bookings etc.
I'm currently buying a holiday home and had the same dilemma. There may be an option 3 that I discovered!
In my own case, the lender on my main residence is happy to either extend funds secured on my main property (option 1), or to extend funds directly against the holiday home provided it meets their criteria (option 3). The lending would be at the same rate (<2%) whether it was secured on the holiday home or the main residence. It's much more expensive to get a commercial holiday-home mortgage.
Their main criteria seems to be that the holiday-home is not a full-time commercial holiday let, but more of a second home that is let for less than half the year. So I think we can fit into that criteria and still satisfy the HMRC criteria for a FHL (available for 210 days and let for 105 days) Full details here https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/hs253-furnished-holiday-lettings-2017.
If you meet those criteria then you can definitely expense all mortgage interest and the other costs detailed in Iain Wallace's book. Best to talk to a mortgage broker to see what would work best for your situation, as it depends a lot on your personal situation.
I will probably go with Option 3 if that works out as the mortgage is then against the holiday home, so no risk on the main residence. It also leaves your LTV intact on your main residence in case you want to borrow more in future.
Good luck, Rgds, Mark.
I'm in a similar position, good to know I have options :-)
Mark, could I ask who your mortgage for your main residence is with, and how you approached them to ask about funding a holiday home? What kind of LTV are you looking at for the holiday home?
Nationwide are my main lender. Go through a mortgage broker to get the best deals - quicker than trying anything yourself. They also search the whole market - it just so happened Nationwide came out tops for me. Our LTV on the holiday let will be less than 70%, and plenty of options at that level.
Good luck, Mark.
Just for clarity on the difference between holiday parks and residential parks, you can read details here; https://www.sellmygroup.co.uk/blog/difference-between-residential-park-holiday-park/
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