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Is it worth converting my buy-to-let property to a short-term holiday let?

If you have a buy-to-let, you may be looking to switch it to a holiday let.Turning it into a holiday let, you may be able to up the rent to benefit from a more generous tax regime since the reduction of the tax relief on mortgage interest.

If you have a buy-to-let, you may be looking to switch it to a holiday let.Turning it into a holiday let means you may be able to up the rent you pull in and benefit from a more generous tax regime following the reduction of the tax relief on mortgage interest that landlords with longer term tenants can claim.

But be aware that the process might not be as simple as you think.

For example, you need to make sure you are not breaching the terms of your mortgage as you could face paying a fine or even end up risking a demand for repayment of the mortgage within a month.

Follow these top tips from mortgage brokers John Charcol to help navigate your way through the options... Converting a buy-to-let property to a holiday let isn't as simple as creating a listing on a site like Airbnb, especially if it is leasehold or you have a mortgage on the property. You will need to spend more time managing the bookings and on things such as cleaning between lets.

Research conducted by the Residential Landlord Association (RLA) has found that 7 per cent of landlords surveyed had started to offer properties as holiday or short-term lets through online sites such as Airbnb.

The research found that the number of entire homes listed on Airbnb in the last year had increased by 54 per cent and the RLA estimates that 134,400 private rented homes have moved from the traditional private rental market to holiday or short-let accommodation.

Of those landlords who have moved over, 36 per cent report this is because of the changes to mortgage interest relief which mean landlords being taxed on their income instead of their profit, with tax relief only being available at the basic rate.

Here are six points to consider before swapping to short term or holiday lets: 

1. Check the conditions of your mortgage

Most buy-to-let mortgage conditions require the property to be let under an Assured Shorthold Tenancy

2. You could be in breach of your mortgage conditions

If you don't contact your lender to seek permission, or change your mortgage, and the lender finds out you are offering holiday lets instead of an Assured Shorthold Tenancy you could be hit with a fee or face a higher mortgage rate. You could even risk a demand for repayment of the mortgage within a month or, in theory at least, be threatened with repossession 

3. You may need to convert your mortgage

Depending on your lender and the terms of your mortgage you may need to remortgage from a buy-to-let to a holiday let, and only a few lenders offer this type of mortgage, where the interest rates are generally higher 

4. Check your insurance

If you change the use of your property your existing buildings and contents insurance may become invalid, and without appropriate insurance any claim could be rejected as your policy could be deemed null and void 

5. Keep an eye on the occupant numbers

If you are renting short term to five or more people (easily done even with two bedrooms if the living room has a sofa bed) you may need a House in Multiple Occupation license (if you don't have one already), with non-compliance potentially resulting in prosecution and a hefty fine.

6. Is it a leasehold property? 

If your property is leasehold, you should check your lease as it may contravene the terms and conditions to undertake this type of let.

Landlords may be thinking of giving up on traditional buy-to-let, which sees them rent out their property on an initial six or 12 month basis before the tenancy agreement moves onto a rolling basis (where either party only needs to give one or two months' notice to bring the agreement to an end).

This is because the recent tax clampdown means owning a buy-to let is no longer viable once other costs such as their mortgage are taken into account.

During the next four years, landlords are seeing the phasing in a reduction of the tax relief on mortgage interest that they can claim. They also now have to be pay a 3 per cent surcharge on stamp duty if they buy a new buy-to-let property.

 A furnished holiday let may be an attractive alternative as the reduction in tax relief does not apply. It means full interest relief is available against the rental income.

The cost of furnishing the property can also be written off for tax purposes against rental profits. 

However, there are qualifying criteria that the property must meet. For example, for a property to qualify as a holiday let, it must be available to rent for a minimum 210 days a year and must be occupied for at least 105 days.

If you are looking for a Buy to Let property, contact Belvoir Liverpool Central on 0151 231 1613 option 1 or email us at liverpoolcentral.sales@belvoir.co.uk

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