Q These are two women who are in their 60s and will not receive a state pension until we are 66 years old. I work in a school and make very little money, and my partner is a graphic designer who has very little work right now.
On a positive note, we have invested in rental properties over the years and are fortunate enough to maintain excellent relationships with our tenants. We also have furnished vacation rentals and are planning to buy another one. We accepted an offer for the property in question, but since it was for closed tenders, we ended up offering much more than we should have. So now we’re trying to find a low interest rate mortgage before I stop working next year and can’t get any mortgage.
Our mortgage broker offered one option, but the rate is quite high. Rental mortgage rates are much lower, but tax breaks for furnished vacation homes are better. If we took out a foreclosure mortgage to rent out, could we then rent out the home for our vacation rentals?
Answer: First answer your last question, no, you couldn’t. The terms of purchase and sale of mortgages usually indicate that the property is being resided by the same tenant with a guaranteed short-term lease for the entire lease term. This is in contrast to the fact that vacation properties are rented out to many different tenants (also known as vacationers) for two weeks or so. And, according to specialized independent brokers holidayletmortgages.co.uk, “Using a mortgage for vacation rentals without the specific authorization of the lender is a violation of the terms of the mortgage, which can have serious consequences, including forced repayment of the loan. mortgages and damage to your credit rating. “
It is equally discouraged to invest in furnished vacation rentals rather than buying to rent, solely on the basis of the tax regime. It’s true that with a furnished vacation apartment, you can still deduct mortgage interest payments from rental income, which as of April 2020, rental homeowners can no longer do. However, this is only if your furnished vacation rental is available to the public for at least 210 days a year and is actually rented for at least 105 days a year.
Mortgage interest is not the only thing you need to consider when evaluating the pros and cons of each type of property. Vacation rental costs tend to be higher due to tenant turnover, and the chances of getting a mortgage of 60% to 75% of the value of the property are lower than with a foreclosure mortgage. Thus, you will need to find more money to invest in a furnished vacation apartment than in a rental property. There is also the fact that – as the tax regulations recognize – vacation rentals generate income for a limited time, whereas rental properties can generate money for years at a time.
If you are determined to go the furnished vacation rental route and are equally determined to find a lower mortgage rate, I suggest you contact an independent broker that specializes in mortgages.