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Holiday
let case studies
Here are a few actual case studies to show the types of
finance we can arrange.
Case Study One ~
Two ~
Three ~
Four ~
Five
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Case study 1
A
couple of months ago, Gary, a petrol
retailer and one of our Buy to Let
investors had recently been in to see
his long standing Accountant for the
obligatory review. After the business
side of the conversation had been
concluded, the Accountant proceeded to
extol the virtues of owning a Holiday
Let; in terms of lifestyle and the not
inconsiderable tax benefits.
After leaving the Accountants office,
interest awakened, Gary called his
regular adviser at Enhanced Wealth Ltd,
in order to establish just what was
possible, in term of finance and the
process for taking matters forward.
The Enhanced Wealth adviser was quick to
refer Gary to the Holiday Let Mortgage
specialist, in the
Holiday Let Mortgages
Dept, who talked him through the salient
points and also recommended that he
download the free electronic
brochure
for additional guidance.
Two weeks ago, following a trip to his
favourite part of North Wales, Gary
called us with a potential Holiday Let
case, although due to nature of the
case, he thought that it may end up
being classed as commercial finance;
which of course comes at a premium.
He went on to explain that the current
vendor had once lived at the property,
but had developed two, fully self
contained cottages within the boundaries
of the land. However, the planning
permission on the cottages contained a
usage restriction of 52 weeks holiday
usage only. Therefore, three properties,
one title and only one property with
full residential usage.
Immediately, our consultant could see
that most non-commercial lenders would
have an issue with the mixed usage and
the title situation. Fortunately,
Holiday Let Mortgages has a relationship
with a forward thinking Building Society
that applies a common sense approach to
each and every individual application.
As such this lender could see that
Gary’s personal covenant was strong, and
in the unlikely event of the “doomsday
scenario” for a lender; a property in
possession, the security was readily
saleable. The loan was agreed at 80%,
non commercial rates, on a basis of a
combination of rental and personal free
income.
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Case study 2
Nicolas wanted to buy a cottage in the
South Hams of Devon, which would be
immediately used as a holiday let; but
also used occasionally by the family
during the school holidays. However, the
longer term plan was to relocate to
Devon, when Nicolas had grown weary of
living and working in the City.
Going down to Devon at the weekends,
Nicolas soon struck up a rapport with a
helpful Estate Agent in Kingsbridge, who
was good enough to keep an eye out for a
suitable property. Over the next three
months, Nicolas spent most of his
weekends on the M4/M5, going down to
view various properties; however the
first half a dozen did not quite meet
his expectations for the future. Then
one Friday afternoon, he got the call he
had longed for, the agent had a new
instruction; a rare and totally
refurbished fisherman’s cottage in Hope
Cove.
A full asking price offer of £485,000
was put forward immediately and duly
accepted.
Nicolas had access to a 20% deposit,
therefore needing to finance the balance
of £388,000. Now initially, he had
approached a small building society with
the proposition, and received a
favourable response. He paid over a £700
valuation fee, so that the security
could be assessed. The lender asked
asked him to provide a letter from a
holiday letting agent, detailing an
estimate of holiday rental over a twelve
month period.
This building society very quickly came
back with an offer of a reduced loan,
stating that the property would not
self-fund within its rules.
After all the effort that Nicolas had
put in to secure the property, he could
see his dream slipping away.
Fortunately, Nicolas “googled” for
Holiday Let Mortgages, and found us
quickly.
We approached a more flexible lender
that has a “special situations product”
available. This product uses a
combination of rental and personal
income to determine the maximum loan
facility available. As such the lending
facility was quickly approved and
Nicolas is enjoying his dream of Holiday
Let/Home ownership.
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Case study 3—Holiday let development
Jon spotted
our advertisement in a South Hams
lifestyle magazine, and decided to give
us a call to see if we could assist with
a development opportunity. He went on to
tell us that he owned a sizeable house
in Frogmore, which stood in about an
acre of ground. The property was
mortgaged to a high street lender, the
loan representing about 50% of the
current value which was around £620,000.
A couple of years earlier, he had sought
full planning and building regs approval
to build a four bed cottage on his land.
This had been granted, but restricted to
52 weeks holiday home usage only. At
this time, due to an unexpected change
of personal circumstance, the project
had stalled.
Jon spoke candidly to one of our
specialists, stating that he did not
really know how to get the finance
arrangements off the ground.
Our adviser explained that the first
call should be to the existing lender in
order to request a part release of
security. Lenders are quite willing to
do this, at minimal legal cost only,
where the release does not affect their
security to a material degree. Where it
does, they normally require part
redemption of the mortgage.
In Jon’s case the loan to value was low
enough for a part release, without a
partial redemption of the mortgage. A
good local solicitor assisted on Jon’s
side, splitting title, and setting up
the plot with a title number.
Stage one complete. Jon now owned an
unencumbered plot with planning
permission, a title number; and a value
of around £200,000. The build cost of
the project at today’s price was
£180,000, with a completed value of
£580,000
It was now time to refer Jon to our
commercial specialist, in order to raise
a loan against the value of the plot.
Commercial recommended that a loan of
70% of the land value be raised
initially, with stage payments along the
way in order to complete the work. In
addition, as the loan to end value was
so low, they also recommended that
interest be rolled into the facility to
assist Jon’s overall cash flow
situation.
Jon’s was more than happy to take the
recommendation and the Bank was happy to lend the money.
Enhanced Wealth Ltd had the loan of
£140,000 agreed, over 6-12 months
towards development costs, with stage
payment and interest rolled into the
facility. We managed to agree a loan
with a 1% arrangement fee, but no exit
charge; thus saving a considerable
amount of money.
The build is going well, with around two
months to final architect sign off.
Non-commercial Holiday Let department
are now back in touch with Jon about a
re-finance onto a lower rate charging
Holiday Let Morgage; once the cottage
is fully completed.
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Case study 4
Steven; the owner of firm specialising
in Pensions and Investment advice, found
us on Google and called one afternoon
for some help and advice with a mortgage
problem. Steven went on to explain the
whole story to us, however he told us at
outset that he had doubts as to whether
a solution to his problem could be
found.
A month earlier, he had sourced a
holiday let development proposition,
through a local estate agency.
The development consisted of a terraced
house in a popular Welsh seaside town.
However the property was run down and in
need of damp treatment, a complete new
kitchen and bathroom. The value in its
initial state was £130,000, with about
£25,000 needed for refurbishment works.
Completed value after works would be
£220,000
After Steven’s offer had been accepted,
he had referred the case to one of his
advisers that occasionally arranged a
buy to let mortgage, where a customer
required a property as a part of an
overall investment plan. The adviser had
arranged; in principle, a buy to let
style mortgage, which allowed for some
light refurbishment works, prior to
letting. The loan size was set at 85% of
the initial value, as most of Stevens
capital was now tied up in a recently
purchased investment property.
This was where Steven’s problem’s really
started. The lender instructed a panel
surveyor to assess the suitability of
the security and also comment on the
rent achievable. The surveyor failed the
project on both counts; it was much more
than a “ light refurbishment” and as
such the lender could not easily realise
money in possession, and the rent
achievable on an Assured Shorthold
Tenancy (AST) would
be around £400 PCM; far short of that
required to support the loan as a Buy to
Let investment.
A kind of double whammy.
Now, that’s where we came in. As a
holiday let mortgage specialist, this
sort of project is grist for the mill;
we face such issues, almost on a daily
basis.
We arranged a loan to purchase and
re-furbish the property; based on a
first charge loan on the development to
70% of the initial value, with the 15%
shortfall being secured by a second
charge on the recently purchased
investment property. To further ease the
cash flow burden during the works, our
consultant recommended that the interest
be rolled into the facility.
The project should be complete in about
eight weeks time, and Steven has decided
the retain the property as a furnished
holiday let. A local holiday lettings
specialist has determined the rent at
£14,000 over a twelve month period.
Steven has asked us to re-finance the
property on completion, switching to a
Holiday Let Mortgage on a lower interest
rate.
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Case study
5
Gordon; the Managing Director of a
telecommunications firm found us on the
internet and decided to give us a call
to in order to discuss a potential
purchase scenario.
Currently living in small Somerset town,
he and his family had always dreamt of a
move to the country. Like many of us who
dream of a move to the country, for many
years it had stayed just that; a dream.
In reality, Gordon and his wife had been
seriously considering purchasing a
Holiday Let business, for Gordon’s wife
to run in addition to a Buy to Let
property that they already owned
outright. He registered with Rightmove,
for properties in the Devon countryside
that would make a great family tourist
destination. Around three weeks later,
Gordon received details of a property
for sale. The specification was perfect,
beyond anything that he had ever
considered that he could be lucky enough
to find. The South Hams estate, combined
a family home, with a “going concern”,
holiday let business, all within a
commutable distance from the office.
The property consisted of:
4 Bed Farm House (Grade II listed), with
full residential usage. This would be
the family home.
In addition, the estate included:
4 x 3-bedrooms cottages, with
Holiday Let usage restriction (section
106).
2 x 5 Bedroom cottages, with full
residential usage.
1 x 5 bedroom cottage, with planning for
conversion into two cottages, Holiday
Let usage only (section 106)
The current owners were running the
above properties as a Holiday Let
business, with full accounts, showing
pre tax profits of £57,000.
Total purchase price, £1,250,000
(including a website).
This proposition was perfect in every
sense but he anticipated problems on how
to finance the purchase.
Gordon had initially approached his
existing lender, mainly to see if he
could take his existing loan, (which had
a 1% Early Repayment Charge), to the new
property. His existing lender declined
flat, stating that the commercial
proportion of the estate meant that the
land was un-mortgageable as a
residential asset. It was evident from
this that the 1% Early Repayment Charge
was going to be unavoidable.
Next stop was his bank of 25 years
standing. The customer services manager
eagerly made an offer, however, at a
full commercial loan rate; B.O.E base
plus 2%, full capital and interest over
20 years. In addition, the Bank had
required encashment of some investment
bonds, in order to free up some money to
reduce the loan size. At that time,
Gordon’s investment bonds were not
performing particularly well and this
was an option he wanted to avoid.
This was the point that he called
Holiday Let Mortgages for advice.
He told us that he had a friend who had
expressed a long term interest to buy
his residential home, should it ever
come up for sale, and that would at save
on Estate Agent’s fees and part
compensate for the 1% ERC. A price was
very quickly agreed.
After redemption of his current loan,
allowing for ERCs, Stamp Duty Land Tax
and other costs on the sale/ purchase,
he was left with around £380,000 to fund
the deposit.
Graham’s bank had based the loan solely
on Graham’s income, the bank felt that
the proposition was a little tight, and
had discounted the Holiday Let rental
income from the serviceability
calculation; citing a lack of experience
in the running a Holiday Let business.
It is possible to see their view point.
Unfortunately, Graham’s problem was more
one of timing. The unencumbered
Buy to Let property was up for sale
but this could not really move forward
until the existing tenants vacated
(about three months). The whole process
could take up to six months to complete
and free up the money he needed, around
£280,000.
Having spent many years dealing with the
main sources of development finance, we
know which lender has the propensity to
lend, and the person within that
organisation that has the inclination to
say “yes”; on the terms that you need.
We approached our specialist lender, who
quickly agreed to structure the loan on
the following basis:
- £590,000 loan over 25 years, to
include 12 months capital repayment
holiday i.e. Interest only for the first
12 months, whilst the business beds in.
This could be re-viewed after 12 months. - £280,000 loan over 12 months to be
repaid on sale of the Buy to Let,
interest only loans to be secured by 1st
legal charges over both properties.
- No early repayment fees throughout
life of loan. An interest rate of 1.35%
over B.O.E. base rate Arrangement fee of
1% of the total amount lent to be added
to loan.
Our customer is delighted with the
structure of the loan, but more than
this the interest rate charged. After
all, why should he pay a full commercial
rate of interest, for a “lifestyle
purchase?
This case is at present awaiting legal
completion.
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Please
contact
us to discuss your holiday let
ideas. |
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