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.
 

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.
 

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.
 

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.

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.

Case study 6 - Holiday let development and retention as a business

The origins of this holiday let case go back around eight months, when we first received this exploratory enquiry.

James; a self employed website designer, from London had always dreamt of living in the West Country and had decided that now children were on the way; the time was now.

Having locked in their earlier property gains, the family had been ideally positioned to quickly secure a perfect family home; not a million miles from the popular holiday destination of Salcombe, in South Devon.

A month after his completion, the enterprising James was on the phone to us, asking for some advice. He and his wife had been talking about the possibility of developing the Barns into one two bed and two three bed luxury holiday cottages; and then retaining them as a holiday letting business for his wife to run.

Our holiday let mortgage consultant drilled down into the numbers and could very quickly see that the long term business made real sense as the holiday lettings demand in the area was very high. In addition, James had the skills to build and market the business through a website, thus cutting out the not inconsiderable agents fees. Rental coverage was not going to be a problem for any Bank.

They then went on to talk about the development itself. James had no experience in this area, at a time when lenders were getting nervous about lending money to professionals! In addition, there was at the time, no planning permission. After a long conversation, talking headline figures and broad principles; our consultant said that James should approach a local architect and arrange a site visit. Whilst planning application and building regulation drawings are important, as is the planning application itself; almost as important or maybe more so, is having a property that your holiday makers will love living in. A badly designed holiday let property could be a disaster.

A good architect can help you start to finish, design, drawings, headline cost advice and can be an invaluable resource when dealing with local planners.

Anyway, James thanked our man and trotted off with the advice and half a dozen free PDF guides to Holiday Let Mortgages Tax tips and other ancillary matters.

Three months later and he’s back with the whole shopping list; planning consent for three cottages (one with full residential usage), a build warrant, and a fixed price builder’s contract. James had even contacted his existing mortgage lender, and requested a part release of security, which had been sanctioned on the advice of the lenders surveyor, without part redemption of their main mortgage.

Result, an un-encumbered plot with full planning permission, value £270,000, a total build cost, including “soft costs” i.e. architects’, finance costs etc of £240,000 and an end value of around £900,000.

This proved a nice straightforward case for us, as James had acted on our advice to the letter and most of the preparative work had been completed.
In this case, Holiday Let mortgages put together a two stage plan, one to develop and the other to retain.

As the land was already owned outright, our banking partner simply secured a build loan on the property, which would be drawn down in stages over a 12 month period, on production of his builder’s invoices and an occasional nod from the banks relationship manager.

Once complete, the bank agreed to turn the build loan into a term commercial finance facility, at minimal cost, based on the “bankable Holiday let business proposal constructed by our consultant.

James and his family are delighted with the advice provided by Holiday Let Mortgages, and the end result that has been achieved. His wife has subsequently referred her dentist brother to Enhanced Wealth Ltd, for a residential loan so everyone’s a winner!

Case study 7—Barn Conversion, with a pre- agreed long term loan for retention as a Holiday Let

We were contacted by Wendy and John, who were having problems finding some finance to develop a barn. We were contacted by Wendy and John, who were having problems finding some finance to develop a barn.

On the face of it, the case looked simple, as the barn had no loans secured on it and the plot had been split off from the main part of the farm that the couple ran as a business. In addition, they had just completed a very smart barn conversion, which still formed part of the main title, using cash reserves. The project had been completed on time and budget, which for a barn conversion, is no mean feat!

As the couple had used cash reserves to fund the last build, they were surprised at the problems they were having finding a complete funding product.
Their bank manager said that he would fund the build, but when he looked at the planning permission said “ah, we can’t do this, its section 106 restricted to Holiday Let Usage only, and we don’t do long term loans on that basis”. “We can do the build though, but want our money back in twelve months”.

Wendy and John were totally put off by that idea, what if the market moved against them and no “exit strategy” from the build loan was available?

Next the couple looked into a self-build style product, but again found the way blocked. “Unfortunately the planning permission is not for full residential and is therefore outside of policy”, the call centre staff said.

They found themselves stuck between two stools and contacted Holiday Let Mortgages for help.

Mark Lanario spoke to Wendy and John and explained that although the availability of finance; especially any relating to construction, was hard to find, there was no reason why their barn conversion and long term holiday let strategy, could not be combined.

Mark went on to explain, that a big tick in the box for any lender was the fact that they could evidence that a project, similar in size and nature had been recently completed. In addition, another positive factor was the fact that the “exit strategy” was not onward sale, which in the current stagnant market, could lead to a protracted period of interest roll up, thus reducing equity, but more importantly to the bank; security.

As the land was already owned, we structured the deal so that the couple did not have to find any money towards the build. A charge was secured against the value of the land, which allowed money to fund the build, to be drawn in stages against builder’s invoices; as and when needed. This staged drawdown helped to reduce the couples overall interest costs, which in any case were rolled into the facility to help ease cash flow.

In the case of long terms loan, serviceability of the loan is paramount to the bank. We assisted Wendy and John to put together figures detailing the likely occupancy levels for the type of building, used for Holiday Letting, in their area; a bankable proposal. In this couples case, as they were “hands on” in terms of meet and greet changeovers, and maintenance, all we needed to do was factor in the cost of marketing the property.

A profit and loss sheet was submitted to the bank, as part of the proposal, detailing our net rental figure that would be available to service the debt. The Bank was more than happy to offer a long term facility.