Buying property with a serviced accommodation Mortgage

Using a serviced accommodation mortgage is a great way to make a return on your money. But, financing the purchase of serviced properties is not always easy. This specialist mortgage can open opportunity for investors looking for flexibility, leverage and access to steady rental income while taking advantage of the higher returns that serviced accommodation can provide.

A serviced accommodation mortgage can help you purchase the ideal short term lets that you are looking for.

Key Takeaways

• When applying for a serviced accommodation mortgage, it's important to consider how the business will run and you will handle factors such as, costs, strategy, systems & marketing.
• Serviced accommodation mortgage demand is increasing due to the higher yields with short term lets. This has begun to make the application process more streamlined.
• You can purchase through a limited company. There are tax advantages to doing this.
• There is a similar criteria to Buy to Lets, with a 25% deposit required.

What is a Serviced accommodation mortgage?

A serviced accommodation mortgage is a specialist loan, typically for commercial investors, that is used to purchase a property specifically for short-term letting.

According to the BBC's analysis of council figures, the number of holiday lets in the UK has increased by 40% over the past three years and there were over 25,000 holiday lets at the end of 2022. 

These types of mortgages offer a great way of making a return on investments in a relatively short amount of time. The interest rates are usually higher than with a traditional mortgage, and the deposit amount can also be higher. It’s important to note that serviced accommodation mortgages may not be available through traditional lenders, so it’s important to seek professional advice when considering this type of loan.

What are the benefits of investing with a serviced accommodation mortgage?

Investing in a serviced accommodation mortgage can bring a number of benefits, including:

• The potential to generate a higher return on your investment than a more traditional property investment. Short-term letting can produce higher yields than long-term letting, as higher turnover of tenants can mean more regular rental income.
• Serviced accommodation mortgages can also provide tax advantages to investors, including capital allowances and tax relief on mortgage interest payments.
• These types of mortgages can be a good way to diversify an investment portfolio, as serviced accommodation mortgages are typically not subject to the same fluctuations as other types of property investments.
• Similar approval process to Buy to Lets with a 25% deposit required.

What are the risks of taking a serviced accommodation mortgage?

Serviced accommodation mortgages can be an excellent investment opportunity, but as with any property investment, there are certain risks involved. 

• As the property is used for short-term letting, there is a greater risk of void periods, meaning periods of time when the property is unoccupied and no income is generated. 
• It’s also important to note that the nature of serviced accommodation means that the property may be subject to more wear and tear than a traditional rental property. 
• The services offered may require additional staff, which may incur additional costs. 
• It’s important to bear in mind that regulations regarding serviced accommodation can vary from country to country, and it’s important to research the regulations relevant to the area you are investing in.

Are serviced accommodation mortgages better than Buy to Let?

For those looking to invest in serviced accommodation, there are a number of advantages compared to traditional buy-to-let investments. Firstly, it can be easier to acquire a serviced accommodation mortgage, as they are more flexible than traditional buy-to-let mortgages, and the returns are generally much higher. Furthermore, serviced accommodation is a great way to take advantage of the growing trend of short-term lettings, as more and more people prefer the convenience and flexibility of short-term rentals over long-term tenancies. Finally, serviced accommodation can provide passive income, as the property can be managed remotely and professionally, with minimal involvement from the landlord.

Applying for a serviced accommodation mortgage

When applying for a serviced accommodation mortgage, you will need to provide as much detail as possible on how the business intends to run. The more evidence you can provide to suggest you have a serious plan in place, the more likely you will be to having your application accepted. You should consider these factors and how you intend to handle them:

Associated costs

When investing in serviced accommodation, it’s essential to take into account the associated costs, as these can quickly add up. As well as the cost of the mortgage itself, additional costs such as insurance, professional property management, and any necessary renovations should be factored into the equation. Furthermore, there will be ongoing operational costs such as cleaning, laundry, and any other services you may offer. It’s also important to consider any potential void periods, which can have a significant impact on potential returns. It’s essential to thoroughly research the regulations surrounding serviced accommodation in the area you are investing in to ensure that you are fully compliant.

Strategy for the business

It’s important to have a clear strategy. This should include a range of considerations, such as understanding the target market, setting rental prices, creating attractive listings, and marketing the property both online and offline. It’s also important to consider a longer-term strategy, including how you will manage the property and retain tenants, as well as looking at possible exit strategies. Finally, it’s essential to have a good understanding of the local market and competition, so that you can make informed decisions about pricing, marketing, and other aspects of management.

Efficient systems

It’s essential to have a reliable and efficient systems in place. This includes a booking system, which should enable customers to easily find and book a property, as well as an accounting system to track rental income and expenses. It’s also important to have a maintenance plan in place to ensure that the property is kept in good condition and any repairs are carried out quickly and efficiently. Additionally, it’s essential to have a contingency plan in place in the event of any unexpected problems or emergencies. It’s important to ensure that you’re compliant with any local or national regulations, such as fire safety or licensing.

Marketing

You will need to market your property: When it comes to marketing your serviced accommodation business, there are a range of options available. This includes online marketing, such as creating a website and optimising it for search engines, as well as using social media to reach out to potential customers. Additionally, it’s important to consider offline marketing, such as distributing leaflets and flyers in the local area and attending relevant events. Finally, it’s essential to have a clear pricing strategy, so that you can ensure your rental prices are competitive and attractive to potential customers.

Can you buy a serviced accommodation property through a limited company?

Yes, it is possible to buy a serviced accommodation property in the UK through a limited company. This is an increasingly popular option for property investors as it offers greater tax efficiency and control. It is important to note that, in order to be eligible for the tax-free status associated with serviced accommodation, the property must be leased out for at least 140 days a year. Additionally, the property must be furnished and meet the criteria for a ‘serviced accommodation’ as defined by HMRC. 

Getting the right advice on Serviced accommodation Mortgages

Serviced accommodation mortgages offer a range of benefits to borrowers, from competitive rates and tailored loan packages to flexible repayment options. Before taking out a serviced accommodation mortgage, it is important to understand the key factors that could affect the loan application process, and to compare different lenders to select the most competitive terms. Additionally, be sure to consider any additional costs or fees associated with the loan. With the right knowledge and research, serviced accommodation mortgages can provide a great option for borrowers looking for a tailored loan product.

If you're not sure where to start with seeking advice on serviced accommodation mortgages, complete the Sunny Fact Find for Mortgage advice (Buy to Let). The information you provide helps us to find the best-suited adviser for your needs. Your adviser contacts you to discuss how they can help. You decide how to proceed.

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