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Serviced Accommodation Mortgage
What is Serviced Accommodation?
Serviced Accommodation is a term used to describe a residential property rented out by a landlord on a short-term basis, with a range of amenities included. These amenities include (but are not limited to) furnishings and appliances as well as general cleaning and housekeeping.
When investing in Serviced accommodation, it is vital that you have the right type of mortgage in place. The mortgage required is specialist and different to that of a standard Buy to Let property as you are renting out to ‘guests’ rather than ‘tenants’. It will allow you to rent your property out on a short-term basis, usually up to a maximum of 3 months.
Serviced Accommodation Mortgages are ideal for landlords who specifically want to cater for the holiday let market, contractors or business travellers and rent on sites such as AirBnb and Booking.com.
Serviced Accommodation Mortgages are not provided by many of the standard high street lenders. Here at The Mortgage Masters, we are familiar in dealing with them and have access to specialist lenders so can find the best rates available.
How does a Serviced Accommodation Mortgage differ to a standard Buy To Let (BTL)?
The main difference between these too mortgage types is simply how the lender calculates how much you can borrow. With a BTL, you have guaranteed monthly rental income which remains the same throughout the year. However, with an SA property, you may have times of the year where the property is harder to fill. For example, if you opt for a holiday let, you have low, mid and high season and may charge different nightly rental fees for each. The lender will therefore have to estimate the annual rent you are likely to achieve.
How much Deposit do I need for a Serviced Accommodation (SA) Mortgage?
Serviced Accommodation Mortgages generally require a minimum deposit of 25%, calculated on the purchase price or market value of the property- whichever is lower. Like with a BTL mortgage, lenders view these kind of mortgages as higher risk than standard residential mortgages as there can be no guarantees that the minimum income required to meet the monthly mortgage payments can be met. However, higher deposits can give you access to more favourable rates.
How much can I borrow for a Serviced Accommodation (SA) Mortgage?
When considering affordability for an SA Mortgage, the maximum loan amount is dependent on a range of factors such as the property itself, the achievable rental income and your own personal tax bracket.
Lenders may request to see a business plan outlining your expected nightly rental fees to ensure that even with voids and general property maintenance, the income will still be sufficient to cover the monthly mortgage payments. It is important that you have a good understanding of the local market and competition so that you can make informed decisions regarding pricing and marketing.
Some lenders will assess whether you could afford the repayments in the event of rental voids, and therefore may consider your own personal income or previous experience with SA properties.
What are the risks of Serviced Accommodation?
• Unlike a BTL where a tenant will sign a rental agreement for a minimum of six months, Serviced Accommodation properties are rented out for much shorter periods. This brings a higher element of risk as you need to have a strategy in place to ensure that your property can be let for as much of the year as possible. For this reason, the amount a lender will let you borrow is dependent on factors such as the property itself and expected income projection figures.
• In the event you are able to rent your property out enough to generate sufficient rental income to meet the monthly mortgage payments, your property could be repossessed.
• Due to the nature of SA properties, they may be subject to more wear and tear than a traditional BTL leading to increased maintenance costs.
However, many investors see Serviced Accommodation as an excellent income generator as generally speaking, they can be rented out for a higher amount meaning the rental income generated can be much higher than that of a BTL.
What are the advantages of Serviced Accommodation mortgages?
There are a number of potential advantages that Serviced Accommodation can bring to an investor. These include:
• They have the potential to generate a higher return on your investment that a BTL property. This is due to the day rate being much higher than that of in a BTL. Letting your property short-term can therefore produce higher yields than long-term letting.
• There are potential tax advantages of SA mortgages for investors. These include capital allowances and tax allowances on interest payments. A property tax specialist can further advise you on this.
• SA mortgages are not typically subject to the same fluctuations as other types of property investments and therefore can be a great way to diversify and spread risk within your portfolio.
• SA properties can provide an excellent passive income when managed remotely and professionally with minimal involvement from the investor.
Should I purchase my Serviced Accommodation property in my personal name or through a Special Purpose Vehicle (SPV)?
Not all lenders will accept investors purchasing an SA property through an SPV. However, there are specialist lenders who do allow it and it can be an extremely tax efficient investment strategy.
In order to be eligible for the tax-free status associated with Serviced Accommodation the property must be furnished and meet the criteria for ‘serviced accommodation’ as defined by HMRC as well as being leased out for at minimum of 140 days a year.
A property tax specialist can best advise you on whether investing through an SPV is right for you.
Can I stay in my own Serviced Accommodation property?
Whilst most lenders are fine with you making use of your own property in short bursts, some lenders will not allow this. It is important to be clear about your intentions right at the start of your mortgage journey to ensure that we find a suitable mortgage deal for you.
This type of mortgage is complex, so get in touch with our experienced advisers who will assess you circumstances in detail to find the best mortgage product for your circumstances.
What is the application process for Serviced Accommodation mortgage?
The mortgage process is pretty much the same, no matter what type of property you buy. We would initially have a chat and collate a range of documents in order to do a full affordability assessment. We would look to apply for a Decision in Principle based on the chosen property and then submit the full mortgage application. The lender would then do their usual credit checks and you would request the valuation and instruct your solicitor. The solicitor would deal with all the legalities and see you right through to completion.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.