Investing in property

Finance expert Ellen Roome looks at the holiday let investment market and the impact of the current tax situation

"I have been thinking about buying a holiday cottage to let out or perhaps something with an annexe that I can let out separately. How do I go about this and what are the advantages and pitfalls?"

If you are considering building a lettings portfolio, it does make sense to consider purchasing a holiday cottage or apartment here in the Cotswolds as we are perfectly situated with a wealth of many beautiful properties in superb locations. This could be a straightforward holiday cottage purchase, an Airbnb or a more bespoke boutique-style rental.

To start with, the tax situation is different to the standard rental proposition, particularly with tax changes recently coming into effect for landlords. For example, there are added advantages if you operate under the “Furnished Holiday Letting” rules. Compared with the scaling back of tax relief on standard buy-to-let from 2017, all expenses including full mortgage interest can be offset against holiday rental income. To illustrate: if your holiday let makes you £12,000 in a given year and the interest payable on the mortgage is £9,000 you are only liable to pay tax on £3,000, subject to your personal tax rate*.

The taxation situation is one of the reasons that short term holiday lets are becoming more and more popular as alternative investments for landlords. However, “normal” buy-to-let mortgages are offered on the condition that you let the property out on an assured shorthold tenancy basis, hence these are simply not suitable options. Holiday let mortgages are designed specifically for properties that will be let out for short periods of time. As well as the more straightforward single property lets, we can help to arrange finance on a wider variety of options including part-let annexes and Airbnb.

Whether you wish to finance your purchase separately or re-mortgage an existing property, most holiday let lenders will only allow you to borrow 75% of the value of the property and they will of course look at both past and potential rental income. This needs to be independently verified by the Bank or Building Society’s valuer/surveyor and a suitable letting agent will also need to estimate rental income if this information isn’t already known. Some lenders will also consider personal income and your asset/liability position too, so you can see that these cases all need to be looked at differently.

If you are considering entering the world of holiday letting, we strongly advise you to consult an experienced financial adviser who can help you negotiate your way through the possible pitfalls. Unlike the main marketplace, where shopping for a mortgage online can be a feasible option, expert advice is essential. I would be delighted to help as here at The Finance Roome we really enjoy a challenge. I have something of a reputation for placing quirky mortgage cases and there is no doubt that this marketplace can be considered quirky!

*Tax information is based on our understanding of the proposed tax legislation as at 15 May 2017 and may be subject to change and is not tax advice, for which you should consult with an independent tax adviser.

Ellen Roome runs a team of very experienced advisers at The Finance Roome Ltd. They have a wealth of knowledge in dealing with complex financial situations with regards to mortgages and all types of insurance. Call 0203 588 3353 or visit