• Introduction
• HMRC Rules
• Bookkeeping and forecasting
• Mortgages

Finances - mortgages

Probably the biggest expense you will have in running your holiday home will be your mortgage, and rates for holiday lets do tend to be higher than for residential mortgages so it is important to shop around to find the best deal.

Each lender will have its own criteria for offering a holiday let mortgage. Typically the chief criteria will be the likely rental income, and the lender will normally instruct someone such as a surveyor to assess that income (see our sections on estimating income, and setting prices). You will of course be required to also prove that you have the required deposit.

The lender may also require you to show that your cottage will meet the HMRC requirements to qualify as a furnished holiday let, but these are relatively straight forward and should not prove a problem. Remember that you will be able to set aside the interest-only portion of mortgage payments against tax.

If finances are tight, or you prefer to minimise risk, then it may be worth considering a fixed rate mortgage. A fixed rate mortgage means that your monthly payments will not change even if the mortgage rates or interest rates change. Normally this will cost you more but it can be worth it as it enables you to fix your costs for a year or two, which you may find preferable if you are just starting out and unsure of your likely rental income.

Getting a mortgage

There are two main ways to go about getting a holiday let mortgage. If you have a financial advisor or mortgage broker then you could ask him or her to do the leg work for you. A good advisor or broker should know where the good deals are.

However, if you go down this route, then ensure that you find out how the financial advisor will charge for his services before you commit to any purchases or arrangements.

The alternate route is to go online and do the research yourself. The list of lenders and brokers for holiday let mortgages is relatively small so the task is not onerous.

When you start your research and start talking to potential lenders, remember that a holiday let mortgage is not the same thing as a ‘buy to let’ mortgage.  A buy to let mortgage is for properties where there are longer rental periods, i.e. for a normal rented property, and will be let on an Assured Shorthold Tenancy agreement which deals with tenants' and landlords' rights and responsibilities. A holiday let is not subject to this agreement.

Should you decide to do the research yourself, here is a short checklist of things to discuss with potential lenders:

• be sure that they know it is a holiday cottage mortgage that you are looking for not a buy to let
• is it a variable, tracker or fixed rate mortgage?
• what rates do they offer?
• are there any set up fees?
• what are their early repayment charges? (if things go well you may want to pay a bit more towards your mortgage each month)
• what are their redemption charges (should you want to change mortgages or sell the property)?
• are there any other fees?

Remember that it is always worth haggling over rates and fees! Remember also to arrange insurance.

Council tax

Like your mortgage, council tax is one of the biggest single bills that you are likely to pay so it is worth knowing that business rates may be payable if the property qualifies as a holiday let and so there are significant savings to be made on your council tax.

Contact your council for details.