How To Mortgage A UK Holiday Let Property If You Are An Expat

11-August-2022 10:52
in Private clients
by Sam Hodgson
How To Mortgage A UK Holiday Let Property If You Are An Expat

As the staycation trend in the UK continues to grow, many British expats are either turning their UK homes into holiday lets while away or investing in them to grow their wealth.

Until recently, longterm lets and traditional buy to let mortgages have been the most popular choice for expats keen to invest in the lucrative UK property market. But there are several good reasons why going down the holiday let route is becoming more popular. 

Holiday let mortgages can make more financial sense from a return on investment point of view, as well as giving expats a place to stay when they return home for visits.

The challenge is finding the right buy-to-let finance when you're based overseas. Generally, traditional lenders are reluctant to lend to expats and demand even stricter criteria for holiday lets. However, there are some excellent options available from specialist lenders, and you can find the best holiday let mortgage deal with the help of a knowledgeable expat mortgage broker.

4 reasons to choose holiday let over long term let

#1. The rise of the staycation

The staycation is here to stay. The number of people choosing to remain in the UK rather than travel abroad is increasing. Covid, Brexit, a weaker pound, and rising living costs are all contributing factors. Travelling abroad is becoming increasingly expensive, and eco-conscious holidaymakers are avoiding planes.

The British holiday let market represents a growing opportunity for UK property investors, and buy-to-let mortgage lenders are seeing exponential growth in holiday let applications. It's not surprising when holiday let and short-term rental owners earned almost £28,000 in 2021, up 33% from 2019 - according to Sykes Cottages.

#2. Profitability

Although a long-term let can seem the simpler option with less day-to-day management required, holiday lets have the potential to provide a greater return on investment. The income from a week's holiday let can be 4 times the income from a long-term rental if the location and management are right.

#3. Tax benefits

Holiday let properties have become more appealing for UK expats because of the tax benefits. Landlords can no longer claim tax relief on mortgage interest, but owners of holiday rentals can - provided specific criteria are met. If you let out your furnished holiday house for a minimum of 105 days a year and it is available to be let for 210 days. HMRC will assess your property as a business instead of as a buy-to-let property. 

This means you will also be able to claim any running expenses such as bills, maintenance costs and fixtures and fittings as tax expenses. You could also be eligible for business rates instead of council tax.

#4. Flexibility to use the house as a base for yourself

For expats living overseas, having a base to return to can be a lifeline. Renting out your own house long-term makes it difficult to return to it as and when needed. With a holiday let, you can use the property for 22 weeks in a year to plan visits home or let family members or friends use it too.

When running a buy to let property business, however, you cannot claim tax relief on days used for yourself or family members.

Holiday let mortgage criteria for expats

Holiday let mortgage criteria for expats

It can be challenging to get approval for a holiday let mortgage as an expat. The majority of holiday let lenders prefer borrowers based and working in the UK. If you're living overseas, earning foreign income or are self employed as an expat, things can get very tricky.

A growing number of specialist lenders are willing to meet expat demand for this type of mortgage, but you will most likely need a mortgage broker to help you access their products.

At Clifton Private Finance, we have close ties with the best lenders for expat mortgages and can help you source the best UK holiday let mortgage agreement.

The following criteria represent what most lenders will require in applying for a UK holiday let mortgage.

Expat borrower requirements

  • Your primary income should come from your trade or employment, not from the rental holiday.

  • A minimum provable income of £35,000 (foreign income is accepted)

  • An active UK bank account

  • Good credit history

  • Maximum LTV 85% (depending on loan size and your circumstances)

  • Expat mortgages to buy a holiday home are available to individuals, partnerships, trusts, limited trading companies and SPV companies (At least one applicant needs to be a UK citizen)

Holiday let UK expat mortgage criteria

The buy to let stress test 

Depending on whether you are applying for the holiday let mortgage as an individual, limited liability partnership or limited company. The stress test or Income cover ratio (ICR) will be applied differently. This ratio is used by all buy to let lenders when assessing your affordability and applies a stressed interest rate to ensure your rental income will cover your mortgage interest repayments.

Your UK tax rate status will also impact how the stress test is applied. The more tax you pay, the higher the stressed rate.

  • Some competitive lenders are offering an income cover ratio (ICR) of 125% at 4.5%, and with top slicing, 115% at 4.5%. 

  • For most expat lenders, the gross rental income should be equal to or exceed the Interest Coverage Ratio (ICR) of 140%

  • For limited companies, the ICR is around 130%

To find out more about the buy to let stress test, read our in-depth article here >>

Deposit for a holiday let mortgage

You will likely need a larger deposit than a standard buy to let mortgage. This is due to the risks involved from a lender's perspective. You can expect to pay a minimum deposit of 25-30% of the property value. However, some lenders are prepared to go to an LTV of 85% in the right circumstances.

Property Requirements

Be aware that lenders restrict the type of property you can let out. Some specialist lenders can be more flexible, but it's always best to check with a mortgage broker before you purchase a holiday let property.

  • The property should be in habitable condition
  • Located in the UK 
  • Most lenders are looking for single dwellings with standard construction (some will consider multi occupancy units)
  • Accurate rental projection from a reputable holiday letting agent (not Air Bnb)

How to improve your chances of getting a UK expat holiday let mortgage

How to get an expat holiday let mortgage

Since only a few lenders offer holiday let and expat mortgages, it's vital to seek expert advice when you combine the two.

At Clifton Private Finance, our specialist expat brokers know exactly which lenders will consider expat holiday let mortgages so that we can connect you with the provider best suited to your needs. 

Our experienced brokers are waiting to help you raise the mortgage finance you need. We can guide you through the application process from start to completion and ensure your holiday home mortgage application is successful.

Contact us to arrange an in-depth conversation with one of our specialist expat mortgage brokers. There's no charge and no obligation, but we'll be able to tell you what we can arrange for you:

We can deliver bespoke terms based on your requirements through our market knowledge.  

Call us on +44 203 900 4322 to discuss your requirements

Or you can book a complimentary consultation with one of our expert advisors at a convenient time for you:

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