Mortgage for Holiday Let Business

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Mortgage for Holiday Let Business

Mortgage for Holiday Let Business

Lauren Tebb explains how mortgages for holiday let businesses work.

What common questions arise for those looking to purchase a holiday let property?

Believe it or not, the most common question I come across when dealing with holiday let mortgages is whether the buyer can stay in their own holiday let property. 

Very often holiday let properties are close to the coast or in central city locations that appeal to people looking for weekend breaks and holidays – but also to the person buying them. It’s a really common question and the answer is, yes, you can.

What kind of properties might be included in a holiday let business? How does that affect the lending process?

Holiday let properties tend to be situated in UK holiday destinations, whether that is for a city break or time by the coast. They can be anything from new build properties to large homes or apartments. 

One important factor to consider is the type of construction. If it’s an apartment or a new build there may be a few extra criteria points to consider. However, essentially, any property can potentially be considered for a holiday let mortgage, it’s just a case of speaking to the lender and making sure that it fits with their criteria – just as we would with any other mortgage.

What costs should potential investors expect when taking out a holiday let mortgage. How do they compare to other types of mortgages?

In general you can expect the same costs as any other mortgage – like stamp duty, for example. A holiday let property is classified as a Buy to Let, so you will also have that 3% surcharge on the stamp duty to consider.

You will need a solicitor just as you would with any other purchase, and there may be a valuation fee, this is a cost for the lender to arrange for a surveyor to look at the property and confirm it is suitable for lending. 

There may also be a lender application and/or arrangement fee. Essentially the costs are the same as any other mortgage, we will always discuss these with you upfront and discuss the different options available to pay these.

Can I get a holiday let mortgage if I already have a residential mortgage?

Yes, absolutely. A holiday let mortgage is very similar to a Buy to Let mortgage that we’ve spoken about before. If you already have a residential mortgage and/or other buy to let properties in the background you can look to buy a holiday let property.

Is investing in a holiday let a good idea?

It depends on your circumstances. We’ve seen people with a lot of experience in Buy to Let then branch out into holiday lets and we have also seen first time landlords go down the holiday let route. 

There is more management involved with these because you have short term bookings. It’s not just a case of getting a tenant who stays for six or 12 months, so it’s a bit more work, however there are agencies out there that can help with this. 

Holiday lets have become more popular since the pandemic, as more people are opting for staycations rather than going abroad. If you’re willing to put the work in and it’s something that you are happy to invest in, then yes, it’s a good idea. 

What distinguishes a holiday let mortgage from a traditional Buy to Let mortgage? What advantages might it offer to investors?

The biggest difference is how the lenders calculate how much you can borrow against the property. With a standard Buy to Let, you’re going to get a monthly rental amount, but with a holiday let that’s not necessarily the case. 

Lenders therefore look at weekly rents in high, mid and low season as estimated by a local lettings agent, this is then averaged out to an annual amount based on how many weeks it is estimated the property will be let out during the year. 

The other difference is that most lenders allow you to stay in that property for a certain number of days throughout the year. It might be that you can stay for 28 days a year, or it might be up to three months – they usually allow some personal use of the property.

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What are the key differences between holiday let mortgages for limited companies and those for individual property owners?

The mortgage options are pretty much the same however the stress test might be different in terms of how lenders assess what they will lend to you. With a limited company, because it is a separate entity, the stress test tends to be a little bit more lenient. 

If you’re a higher rate taxpayer or an additional rate taxpayer, those calculations tend to be a little bit higher, which means lower lending. I know that sounds very jargony – which is why brokers are very important in this process.

However essentially it works the same. It’s just that the entity that’s applying for the mortgage is different.

What tax implications should be taken into account when investing in a holiday let property?

With any investment property purchase, I always recommend speaking to your accountant before you commit to that investment, whether you’re buying in your personal name or as a limited company.

Any income from an investment property, whether it’s a holiday let or a Buy to Let is going to be taxed and this can potentially affect the tax bracket you’re in and how much tax you’re going to have to pay over the year. The income from a holiday let tends to be a little bit more than with a standard Buy to Let, so definitely speak to an accountant beforehand.

How long does the process typically take from application to approval for a holiday let mortgage?

It’s similar to a normal mortgage. We normally allow around three weeks for a mortgage offer – sometimes that’s optimistic depending on the lender’s service levels at the time. 

However we recently managed to get a holiday let mortgage offer within three days – it depends on the lender’s turnaround time, how busy the market is and how quickly a valuer can get out to the property.

If the case is packaged correctly from the beginning, that will give you the best chance of getting a mortgage offer quickly.

What financing options are available for a holiday let business owner?

It’s pretty much the same as Buy to Let. You can choose from deals with fixed rates, discounted rates or variable rates. They are non-regulated in the same way as Buy to Let – it’s different from a residential mortgage. 

You can borrow on an interest only or a capital repayment basis. There are some bridging finance options available, this would apply if you need to purchase the property quickly or plug a gap between selling one property and buying a new one. So there are lots of options out for holiday lets as they become more popular.

Is it possible to rent out a holiday property using a standard mortgage?

It would depend on the lender you’ve got your mortgage with, but the short answer is probably no. However, in a similar way to getting consent to let on a residential mortgage, it would be a case of speaking to your existing mortgage lender and asking them for permission to rent the property out as a holiday let. 

If you are purchasing a holiday let, you need to be specific about how you’re going to rent that property out. If it is going to be a short term let property – a holiday let – we need to let the lender know that from the start. The conditions of the mortgage are different, so you need to be clear on what you’re going to do with that property at the outset.

What is the minimum deposit required for a holiday let mortgage?

Generally speaking, you’re looking at a 25% deposit, so 25% of the property value. A handful of lenders will allow a lower deposit, maybe 20%, but those options are very few and far between. 

Those rates tend to be much higher too, so I would always focus on a 25% deposit where possible – then you know you’re going to get the most suitable deal.

How long have you been specialising in holiday let mortgages? How might your experience be beneficial to potential investors?

I’ve been doing holiday let mortgages for years. I’ve done a lot of them – more so since the pandemic as more people opt for staycations, leading investors to decide that a holiday let property is a good investment. 

I know which lenders we can go to for holiday lets and what information they’re going to ask for. Also, I will know what questions to ask to determine how a lender is going to view a property, its location and whether it’s suitable as a holiday let. 

It’s all about having the right conversations upfront, giving relevant advice and guiding people through the process. I’m essentially here to hold your hand – that’s what I do.

How important is it to work with a lender with experience in this area?

It’s very important. The broker and the lender work together and often questions come up that you wouldn’t get on a standard Buy to Let or a residential mortgage. 

A broker that understands the holiday let mortgage process is better able to package a case for a lender upfront so that they don’t have to come back and ask for additional information. It speeds the process up and makes it smoother for everybody. 

It’s also handy to have a lender contact and be able to have a chat with an underwriter. We can explain situations and discuss the circumstances. It just makes the process easier for everybody involved.

What is the maximum loan amount I can get for a holiday let mortgage?

The maximum loan amount is going to depend on the property, how much rent you’re going to be able to achieve from it, your personal circumstances, how much tax you pay and what your tax bracket is. We work that into the lender’s calculation. There is no limit – how much you can borrow is defined by you and the property.

What is the process for applying for a holiday let mortgage?

The steps are the same as for any mortgage. We would look initially at the affordability and make sure that the property’s suitable. Once you’re ready we will get an Agreement in Principle  – which is slightly different from one you’d get on a residential mortgage, as it’s more property-specific rather than specific to the applicant. 

Although there’s the usual kind of credit checks etc, they will also be looking at the property and how much income it will generate. 

Once you’ve had your offer accepted, it’s time to do the full mortgage application and we’ll need some documents for that which we will send over to the lender with the application. Then there’s the valuation and your usual solicitor’s work. It’s not too different from any other mortgage that you have applied for in the past.

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.