Comprehensive Guide to Mortgages for Serviced Accommodation

In the ever-evolving world of real estate investment, Serviced Accommodation Mortgages have emerged as a game-changer. This unique financial product is designed specifically for investors looking to tap into the lucrative serviced accommodation sector. Whether you’re a seasoned investor or a first-time buyer, understanding the nuances of these mortgages can unlock new avenues of growth and profitability.

Serviced accommodations, which offer a blend of the comforts of home with the amenities of a hotel, have seen a surge in popularity. As a result, the demand for mortgages tailored to this sector has grown exponentially. In this article, we dive into the intricacies of Mortgages for Serviced Accommodation, providing you with the knowledge you need to make informed investment decisions.

Stay tuned as we explore eligibility criteria, benefits, potential pitfalls, and tips for securing a mortgage for your serviced accommodation property. Let’s demystify the process and set you on the path to successful real estate investment.

Post Topics

What are serviced accommodation?

Can you Explain what a Serviced Accommodation Mortgage is?

What Type of Mortgage is Required for Serviced Accommodation? What are the Differences Between a Holiday Let and a Buy-to-Let Mortgage?

What are the Borrowing Limits and Deposit Requirements for a Mortgage on a Serviced Apartment?

What Mortgage Requirements are Needed for Serviced Accommodation in England?

What Expenses are Associated with Serviced Accommodation?

What are the drawbacks of mortgages for serviced accommodations?

Next Steps

General Questions about Serviced Accommodation Mortgages

What are serviced accommodation?

Serviced accommodations in the UK are a type of furnished accommodation available for short-term or long-term stays. They provide amenities, utilities, and services typically found in hotels. These accommodations are popular among business travellers , tourists, and people who need a place to stay while they find more permanent housing solutions.

Here are some examples of serviced accommodations in the UK:

1. Perth Station Hotel: This is a 3-star accommodation located in the heart of Perth, just a minute walk from the town centre, the theatre, the concert hall, and the River Tay. It offers amenities such as WiFi, parking, airport transportation, a restaurant on site, and a bar lounge.
2. citizenM Tower Of London hotel: This is a 4-star accommodation located above Tower Hill Underground Station. It offers stunning views of the Thames, Tower of London, and Tower Bridge from its 370 rooms. It provides 24/7 food and beverage service, free super-fast WiFi, and room controls via iPad or their app.

These accommodations are available in over 170 locations in England, Wales, Scotland, and Northern Ireland, covering major cities like London, Edinburgh, Cardiff, Belfast, Manchester, Birmingham, Newcastle, Glasgow, and Aberdeen¹. They are also available in popular tourist locations like Oxford, Cambridge, Brighton, York, and Harrogate.

The serviced accommodation industry is a major sector in the UK’s tourism industry, with UK households spending over 20 billion British pounds on accommodation services each year, both in the UK and abroad. Hotels and similar serviced accommodations represent the biggest subsector, with the highest number of accommodation enterprises.

Can you Explain what a Serviced Accommodation Mortgage is?

A serviced accommodation mortgage is a buy-to-let mortgage designed for holiday let investments, also called buy-to-holiday let mortgages. This type of loan enables landlords to rent out their properties for short-term periods and allows them to live in the property with furnishings or without.

Serviced accommodation and AirbnbWhat is Airbnb? Airbnb is an online platform that allows pro... are options where property owners offer fully furnished accommodations for short-term stays, typically up to 90 days.

Serviced accommodation typically offers amenities similar to those in hotels, such as daily room service and housekeeping.

Serviced accommodations, such as Airbnb and holiday lets, generally offer amenities such as a kitchen or kitchenette, laundry facilities, Wi-Fi, living and sleeping areas, and other conveniences.

A serviced accommodation mortgage allows landlords to use the property as a rental for up to 3 months at a time.

What Type of Mortgage is Required for Serviced Accommodation? What are the Differences Between a Holiday Let and a Buy-to-Let Mortgage?

One of the initial steps is securing a commercial mortgage to finance serviced accommodation. A conventional Buy to Let mortgage may not be the best option.

Standard buy-to-let mortgages are designed for properties that will be rented out for at least six months on a short-hold tenancy agreement. Serviced accommodation may restrict the length of time a property can be rented to the same individual.

As a result, a long-term lease agreement may not be possible, which distinguishes it from a traditional buy-to-let mortgage.

There are distinctions between mortgages for serviced apartments and financing for holiday lets. An apartment can be rented for short-term stays ranging from a few days to a few months, while holiday lets are typically residential properties rented out to vacationers for one or two weeks at a time. Holiday properties typically do not have access to the extra services provided by serviced accommodations.

What are the Borrowing Limits and Deposit Requirements for a Mortgage on a Serviced Apartment?

When securing a mortgage for a serviced apartment, you can typically borrow up to 75% of the property’s value. This means that a minimum deposit of 25% is required, which is similar to the requirements of a traditional buy-to-let mortgage.

The amount you can borrow is primarily based on the rental income that the property is expected to generate. This is a common practice in buy-to-let mortgages. Mortgage lenders usually employ a standard rental calculation based on the projected rental income of the property. However, this calculation may vary from lender to lender.

The specific amount you can borrow will ultimately depend on the individual property in question.

Warning: This information will provide a general overview of serviced accommodation mortgages. The specifics of your situation could significantly affect the terms of your mortgage. Therefore, consulting with a financial adviser for personalized advice and further details is crucial before making any decisions.

It would be best to consult with one of our team’s brokers. We will analyze all the figures to determine the amount you could borrow for any property you want.

What Mortgage Requirements are Needed for Serviced Accommodation in England?

Consult your local authority for further information. Before proceeding, check if planning permissionPermission granted by the local authority for a property to ... is required to convert a residential property into serviced accommodation.

Certain councils have restrictions on the number of days per year that you can rent out a property for short term lets. That could have a significant impact on your annual rental income.

Landlords in Greater London are only permitted to rent out a property for short term lets for a maximum of 90 days per year. It is important to ensure that your serviced accommodation has sufficient insurance coverage. A specific policy tailored to the serviced apartment you’re interested in purchasing would be necessary.

What Expenses are Associated with Serviced Accommodation?

Mortgages on serviced accommodation or apartments are considered commercial mortgages, making them more costly than standard residential or Buy-to-let deals.

It is crucial to talk to your mortgage broker. We will compare prices to ensure you are getting the best deal.

What are the Advantages?

When seeking a mortgage for serviced accommodation, it is essential to comprehend the unique requirements and distinctions compared to other forms of property financing. Serviced apartment mortgages are considered commercial mortgages and are not usually suitable for traditional buy-to-let properties.

Unlike Buy to Let mortgages, serviced accommodation mortgages restrict the duration that a property can be let out to the same tenant. This means that long-term lease agreements are not possible, but it also means that you have the flexibility to rent out your property on a short-term basis.

One of the major benefits of serviced accommodation is the potential for higher rental income. By offering additional services such as cleaning, laundry, and concierge services, you can command higher nightly rates compared to traditional Buy to Let properties. This can make serviced accommodation a lucrative investment opportunity.

Another benefit of investing in serviced accommodation is the potential for higher occupancy rates. With the flexibility to rent out the property for short periods of time, you can attract a wider range of tenants, including business travellers, tourists, and those in need of temporary accommodation. This can help to maximize your rental income and ensure a steady stream of bookings throughout the year.

Additionally, serviced accommodation properties often require less maintenance and upkeep compared to traditional Buy to Let properties. This is because the property management company typically takes care of maintenance, cleaning, and other services for you. This can save you time and money in the long run.

If you would like a callback from one of our experienced brokers to discuss serviced accommodation further, please click here.

What are the drawbacks of mortgages for serviced accommodations?

While investing in mortgages for serviced accommodations can offer significant returns, it’s important to consider the associated challenges. Here’s a more structured overview of potential drawbacks:

Higher Operational Costs

Unlike traditional long-term rentals, serviced accommodations incur substantial operational costs. As the owner, you’ll manage expenses such as housekeeping, Wi-Fi, utility bills, and Council Tax, which can significantly impact your profit margins.

Leasehold Restrictions

Property under leasehold agreements may face stringent rules limiting or prohibiting short-term and serviced lettings. These restrictions can affect your ability to operate and generate income from the property.

Mortgage Financing Constraints

Certain lenders have specific conditions regarding the use of properties for serviced accommodation. These might include limitations on the duration and frequency of short-term lettings, potentially restricting your operational flexibility.

Value Added Tax (VAT) Implications

Depending on your geographical location and operational specifics, you may be required to pay VAT on the income derived from your rentals. This added expense can affect your net earnings.

Local Regulatory Challenges

Some localities have regulations that restrict serviced accommodations. These might include zoning laws or other municipal restrictions that can limit where and how you can operate, impacting potential revenue streams.

Income Volatility

The revenue from serviced accommodations can vary due to seasonal changes and booking gaps. This fluctuation can make financial planning challenging and may affect the stability of your investment returns.

Caution: This summary is intended to give you a broad perspective on the potential challenges of investing in serviced accommodation mortgages. Given the complexity and local specificity of such investments, consulting with a financial adviser to obtain tailored advice is crucial before making any investment decisions.

Next Steps

Buying a serviced accommodation is a significant investment, and understanding the potential challenges is crucial before deciding. Here are some steps to consider:

1. Research: Take the time to thoroughly research the serviced accommodation market in your desired location. Understand the demand for short-term rentals, local regulations, and potential competition.

2. Financial Planning: Assess your financial situation and determine how much you can afford to invest in a serviced accommodation property. Consider your budget for purchasing the property, as well as ongoing operational expenses.

3. Consult with Experts: Speak with experienced mortgage brokers, property managers, and financial advisers who have knowledge of the serviced accommodation market. They can provide valuable insights and guidance to help you make informed decisions.

4. Evaluate Mortgage Options: Explore different mortgage options specifically tailored for serviced accommodations. Compare interest rates, terms, and conditions from various lenders to find the best fit for your investment goals.

5. Due Diligence: Before finalizing any agreements, conduct thorough due diligence on the property, including inspections, legal checks, and financial assessments. Ensure you understand all potential risks and have a clear plan for managing them.

6. Develop a Business Plan: Create a detailed business plan outlining your goals, strategies for attracting guests , and financial projections. This plan should outline how you will manage operational expenses, market the property, and generate income.

7. Monitor Performance: Once you have acquired a serviced accommodation property, closely monitor its performance. Track occupancy rates, customer satisfaction, and financial metrics to ensure your investment is on track to meet your goals.

In conclusion, investing in serviced accommodation mortgages can be a lucrative opportunity but comes with its own set of challenges. Researching the market thoroughly, consulting with experts, evaluating mortgage options, conducting due diligence, developing a business plan, and monitoring performance to maximize your investment potential is essential. By taking these steps and proactively managing potential risks, you can increase the likelihood of success in the serviced accommodation market.

General Questions about Serviced Accommodation Mortgages

What is a serviced accommodation mortgage?

A serviced accommodation mortgage is a specialized mortgage product designed for property owners who wish to rent out their accommodation properties on a short-term basis. Specialist lenders offer this type of mortgage and aims to accommodate the unique needs of the accommodation business, including higher turnover and potential void periods.

How does a serviced accommodation mortgage differ from a standard buy-to-let mortgage?

Unlike standard buy-to-let mortgages, serviced accommodation mortgages are tailored for short-term rentals, which can offer higher rental income but also come with greater management requirements and potential income volatility. These mortgages typically feature more flexible terms to account for the unique aspects of managing a holiday rental or other short-term accommodation property.

What are the benefits and risks of taking a serviced accommodation mortgage?

Benefits include the potential for excellent income generation through higher rental charges for short stays, which could bolster a property owner’s monthly income and create an extra income stream. Risks involve increased operational costs, more intensive property management, and income instability during off-peak seasons.

How much can I borrow with a serviced accommodation mortgage, and what are the typical repayment terms?

The amount you can borrow and the terms of your mortgage repayment depend largely on your personal income, the projected accommodation rental income, and the lender’s assessment of the investment property’s income projection figures. Lenders offer competitive rates to reflect the higher potential earnings from these properties.

Are mortgages for serviced apartments more expensive? What costs are involved?

Yes, they can be due to the perceived higher risk and additional services required to manage a short-term rental property. These mortgages often have higher interest rates and may include fees for commercial mortgage financing, reflecting the comprehensive nature of managing an accommodation property.

Operational Questions

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

Yes, purchasing through a limited company is a popular option for property investors, as it can offer tax relief and benefits not available to individual investors. This structure is particularly beneficial for managing multiple types of property investments, such as holiday properties, with minimal involvement.

How long can I rent out my property with a serviced accommodation mortgage?

This often depends on local council regulations and the terms set by your accommodation mortgage provider, but typically, properties can be rented as long as they adhere to local short-term rental laws and the lender’s requirements.

Legal and Regulatory Questions

Is renting out serviced accommodation legal?

Yes, it is legal, provided that the property owner complies with local zoning laws, achieves the usual credit checks during the mortgage application process, and adheres to any council tax obligations. However, some areas may have restrictions or require additional licensing for short-term rentals.

Do you have to pay council tax on serviced apartments?

Typically, serviced apartments operated on a short-term basis may be subject to business rates rather than council tax. However, this can vary based on how long you rent out the property and local legislation. It’s essential to make an informed decision by consulting with a property tax specialist or an efficient mortgage broker.

How can a mortgage broker help with serviced accommodation mortgages?

A mortgage broker can provide invaluable assistance by comparing hundreds of mortgage products to find the perfect mortgage with the best accommodation mortgage rates. They ensure that the mortgage application caters to the specific needs of an accommodation business, helping to navigate complex requirements and secure approval from accommodation mortgage lenders.