Rental Mortgage Guide for Rentals and Vacation Homes


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  • This guide to home loans will help you if you are considering buying a second home or vacation property. If you are lucky enough to be able to do so, you can rent it out to paying guests to increase your income.

    More than 770,000 families in England own a second home according to the English Housing Survey 2018-19, the most recent year for which official statistics are available. Of these, almost 40% use their second pad as a vacation home for themselves, friends or to rent to vacationers.

    It’s not hard to see why. You can earn thousands of dollars each year depending on the charm and location of your vacation home. It could be an investment that generates regular income and long-term gains, if house prices rise. Or the income could help you cover the cost of a mortgage on the property, while still leaving you free to use it at other times.

    Rental Mortgage Guide for Rentals and Vacation Homes

    If you fancy making money with your hole in the country or your pied-à-terre in the city, here are some helpful rental mortgage buying tips to get you started.

    Choose your property and location

    The year-round scenic destinations that are attractive and accessible to large populations, such as the Peak and Lake Districts and the Cotswolds, are a plus for vacationers. North Wales and the Welsh borders are also popular locations, according to Luxurycottage.com.

    Think about how easy it is to get to your property using different transport links and how close your home is to attractions or the coast. If your home is near a beach or within walking distance of tourist hot spots, you may charge more.

    City lovers might want to invest in an urban pad. Last year, an analysis by Vanquis found that the three most profitable cities to be an Airbnb owner were Cardiff, Belfast and Manchester.

    Image credit: Future PLC / Anya Rice

    Personal keys and premium clients

    You will have to go the extra mile to attract quality guests and charge extra. Vacation homes positioned as upscale getaways can generate up to 2.5 times the income of a standard property.

    Luxurycottage.com Managing Director Alistair Malins said: “Every guest wants to feel special when they are away and little touches like a basket of local produce or a bottle of wine on arrival really help put the spotlight on. tone of their stay.

    “Being able to enjoy some of the luxuries you don’t have at home, like a hot tub, sauna, or warming up by a wood stove, adds to the authentic experience of staying in a luxury home. “

    Set your rates

    Talk to local rental agents to find out the going rate for properties like yours. Ask how long is the booking season and what rates you can charge in high and low season. However, the amount you can charge will depend in part on the quality of your online reviews.

    In your first year of receiving reviews, you may want to list your property at a reduced price in order to attract vacationers and garner positive reviews.

    Your property may not always be rented out, especially outside of the holiday season. So if you have a mortgage on the house that you plan to pay off with rental income, factor in some empty periods in your calculations.

    Advertise your vacation home

    Airbnb is one of the most popular platforms used by vacation home owners. You pay around 3% per booking to use the website. You are responsible for managing your own reservations and responding to customer inquiries. Similar websites include Booking.com, Cottages.com, and VRBO.com, formerly known as HomeAway.

    An alternative is to pay a real estate agent to market your property, handle guest administration, and maximize rentals for you. Agents tend to charge between 15% and 20% of each reservation.

    A gray sofa in a living room with a large wooden coffee table and green wallpaper

    Image credit: Future PLC

    Tax treatment

    The income you earn by renting your vacation home is taxable. You will need to report this on your annual income tax return. You will then pay income tax at 20%, 40% or 45%, depending on whether you are a taxpayer at the base rate, the higher rate or the additional rate.

    Luckily, you can enjoy many tax benefits on your vacation home if it meets the furnished vacation rental rules. The main rules to remember are that it must be available for rental at least 210 days per year and for paying customers 105 days per year.

    If you meet the conditions, you can deduct expenses such as:

    • Mortgage interest charges
    • Advertising or property management costs
    • Cleaning and maintenance
    • Utility bills
    • Welcome pack items
    • Insurance premiums

    You can also get tax relief on items such as furniture, accessories and equipment purchased to increase the value of your vacation home.

    Setting up your vacation home the first year can get expensive. Don’t worry, you can carry any loss forward to the next tax year for tax purposes.

    Here are some other tax benefits:

    1. Small business rate relief – owners of seasonal rentals must register for the professional rate rather than the housing tax. However, you may be eligible for small business rate relief, which means you pay nothing at all. Call your town hall to find out if you are exempt.
    2. Wear allowance – you can claim tax relief on national items that you have replaced because they are no longer usable.
    3. Pension contributions – the profits you make from your holiday home are eligible for additional government tax when they are paid into your pension fund.
    4. Capital gains tax – when you sell your property, you may be entitled to contractor relief, turnover relief or retention relief.

    It is advisable to speak to an accountant for tax advice.

    Mortgage and insurance specialist

    You will need a specialized vacation mortgage which typically requires a 25% down payment. It’s best to speak to a mortgage broker who can find you the best mortgage rates for your situation. Specialized insurance is also essential. Current home insurance will not cover your needs, as there is an increased risk of damage and theft.

    You may also want liability coverage, which insures you if a guest is injured on your property. Price comparison sites will allow you to search for specialized covers.

    About Michael B. Billingsley

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