Articles:
Holiday Let Mortgages: Problems and Solutions
SB May 2007
If you are looking for a
holiday let mortgage, it probably means you
have already decided holiday letting is for
you. The possibilities seem very attractive,
and it is certainly one of the most exciting
kinds of business to run.
There are different ways of financing your
holiday let purchase. But the likelihood is
that a holiday let mortgage will be the best
financing option.
The problem is – as you will discover – that
getting a
holiday let mortgage is not
straightforward. Quite a lot of lenders do not
offer mortgages for holiday lets. Even those
who specialise in providing finance for
buy-to-let properties usually exclude holiday
lets from these schemes. This is because
acquiring a holiday let is seen more as
purchasing a business than as purchasing a
property.
However, it is by no means impossible. The best
thing is to talk to an independent
mortgage broker, who will almost certainly
be able to find a specialist lender who can meet
your needs.
A holiday let mortgage is different from an
“ordinary” mortgage in a number of ways.
The deposit required is usually higher. It
will be at least 15% of the purchase price,
and sometimes as high as 30%.
Lenders are more likely to work out how much
to lend you on the basis of the rental
income, or the potential rental income, of
the property, rather than on your personal
income. Of course this can be difficult
when you haven’t yet bought the property.
It isn’t so much of a problem when you are
buying it as a “going concern”, but if you
are starting from scratch, the lender is
likely to estimate the income by talking to
local lettings agencies about letting
prices, and finding out from local
businesses how long the “season” lasts.
Most lenders insist that the rental you can
obtain from the property should be between
120% and 150% of the holiday let mortgage
payments – the average is usually 130%.
Another difficulty can be that many lenders
of holiday let mortgages require the
property to be immediately habitable BEFORE
they will come up with any money. So what
do you do if, as is more than likely, the
property requires improvement or
refurbishment before you can start letting
it out? Fortunately there are some
specialist lenders who will take account of
this, and offer a scheme at special rates to
start you off. They will then refinance
later at a lower rate when the
refurbishments are complete. Talk to your
independent broker to find out where you can
find specialist lenders.
The main thing to bear in mind is that lenders
of holiday let mortgages DO want to lend. They
are not trying to make difficulties for the sake
of it. They just need to take account of the
extra risks and uncertainties involved in
financing a business. So don’t give up. If it
works out, it will be an exciting and highly
profitable venture for both you and your lender
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