Insane to take on a massive interest only holiday-let mortgage now?

[IamwhoIsayIam]

We are looking at a holiday let, the mortgage will be massive but paying interest only is affordable (without rent) and with rental income, we stand to make a decent amount of money.
Our savings are doing nothing in the bank and despite the massive mortgage and predicted expenses, the yearly income would be equal to what I normally earn in a year.
Is this an insane thing to do?

[Frenchfancy]

Honnestly - its insane. The yearly income is good because it is a lot of work. Paying an interest only mortgage makes no sense. Holiday lets have lots of upkeep. They need to be kept up to date to get good occupancy. If you are only pay interest you will never have the capital to do that. What happens when mortgage rates go up? When you have no rentals because you've been put in lockdown?

[BadDucks]

I would tread carefully. Having owned a holiday let getting occupancy year round is really not that easy. I think your plans for interest only are a bit flawed here and unless property prices increase significantly you won't make the "income" you are hoping to in the long run.

If you are considering an apartment type of property with a communal pool then maintenance fees can really come up quite frequently and are often very costly.

[IamwhoIsayIam]

Good points but here is my take on it -

The work is fine - its a job - I understand that.
By only paying the interest you have funds available for the upkeep instead of most of the turnover going to pay off the mortgage.
Because the mortgage rate is low and only the interest we can cover it without rental income - ie in a lockdown.
It's extra work/income not to replace anything we already do.
We pay off big chunks yearly rather than committing to high monthly re-payments.

Does that make it seem more possible?

[BadDucks]

Really depends on what your long term aim is. I would strongly discourage you from seeing rental income as "turnover" or "income in anyway if you are only paying the interest on the mortgage. I would also encourage you to manage your expectations regarding occupancy off season you will not be full all year round.

Without knowing where and what type of property you are considering it's difficult to properly advise. Mine was not a UK holiday let.

[BadDucks]

Meant to say that a conservative but realistic occupancy rate would be about 20 weeks per year so I would do your calculations based on this first.

[HollowTalk]

Now isn't the time to buy a holiday let, if holidays aren't really going to be happening for the foreseeable future.

[IamwhoIsayIam]

It's a UK holiday let, where bookings are normally consistently strong every year but this year are absolutely through the roof. Its never been so busy. Also house sales are up. Sales are being agreed within 24-48 hours and people offering over the asking price. May be its unique to where we live.

[poppet31]

I'm a tax adviser and finding that a lot of my clients are not making much of a profit these days on holiday lets because of the new rules on mortgage interest being restricted for tax purposes. And that was before Corona!

[BadDucks]

This year is a unique situation, lots of people can't travel abroad so UK bookings are up. There is a bit of a mini housing boom in my local area too (not tourist area) which I think is reflecting a back log from lockdown. Properties are going fast and prices are up a little.

[IamwhoIsayIam]

@poppet31 - I've been trying to get a ring back from a tax adviser today to run a few questions. I need some expert answers to a couple of specific things. Though going purely on the MN advice it seems yes this would be insane

[Seeingadistance]

Are you proposing to use a combination of savings and interest only mortgage for the purchase?

You can afford the mortgage if for any reason you are unable to let the property?

The income from holiday lets will be used to pay off the loan over time?

I’m in no way qualified in terms of finance etc, but that seems a reasonable plan to me.

You will need to keep the property insured and maintained, as well as furnished and equipped to a good letting standard.

I do think that UK holidays are going to become much more popular as people discover that travelling abroad is going to be a hassle/more expensive/impossible with C-19.

I have a small flat in a Scottish coastal town which I have on a home swap website. I’ve had a higher than usual number of enquiries recently - either from people who can’t go abroad as planned or who are are coming from abroad and might need to quarantine for 14 days. Flat has been occupied for the past 2 months, and I’ve had to turn others away as I’d like to stay there myself for a few weeks!

[Zenithbear]

Can you get a mortgage for a holiday let? Or are you looking to remortgage your house to buy it?
People buying houses to live in is a totally different market.
We have a holiday cottage that we bought outright but we only let a couple of close friends use it. We looked into letting it briefly but the profit wasn't enough for us to bother as we use it loads ourselves.

[Frenchfancy]

Do not base your occupancy levels on this year. You need to look at a 5 year average. I would calculate on between 12 and 20 weeks depending on location. Anything else is a bonus.

I've been doing this for 18 years. You need to be prepared to be called at all hours, while you are in the middle of of family meal, forget about weekends away you need to be on hand unless you have a manager and they eat up your profits.

[Cottipus]

Might be worth looking at some specialist holiday let forums to ask advice. It’s quite a niche area.

Interest only mortgages work well for investment properties from an accounting POV as it simplifies bookkeeping and frees up cash flow.

But really what you are proposing is setting up a small business rather than buying an investment property. Are you happy with all the legal obligations, admin, marketing, tax returns etc that entails? Have you the time to give to the business? Are you happy to take on the liability of a large debt and tie up capital in the property potentially long term?

We have mulled over the idea of buying a holiday home in the past but given we can rent somewhere really nice for say £100 a night I’d much rather pay someone else a few hundred quid to stay in their lovely flat for 3 nights and not have the hassle!

[Rbaby]

Hi Op, interested to know if you made a move last year with the holiday let idea? What did you decide?
Thanks in anticipation, interested