A holiday let business could typically comprise of a holiday park or maybe a multi-unit setup. In terms of lending we move away from the standard holiday let lenders over to specialist commercial finance houses.
What do lenders class as a Holiday let Business?
HMRC has a term for all holiday lets: Furnished Holiday Lettings (FHL) and classes the income as business income, which conveys tax advantages if certain conditions are met.
However, a single holiday let property, with C3 Residential use in the planning, which could also be a someone’s home, a buy to let or short term let, is not a “leisure business”, as commercial lender’s classify them.
That’s simply a rental property, that’s let on a short- term basis.
The lenders that provide loans to finance such properties, 100% of the time lend on BTL property, and have morphed their BTL products to allow for short term seasonal rent, rather than rent from a long term let. Plus, most allow 60 to 90 days own use- which of course a real business owner wouldn’t want to do, as profits would be lost.
These are the types of property complexes and situations that commercial lenders classify a holiday let business:
- a site containing multiple short-term letting units, forming a small holiday park or holiday complex
- holiday complexes comprising 4 or 5 barn conversions
- 5 plus letting units, with owners’ accommodation
- Multiple title holiday complexes
- holiday parks consisting of chalets and wooden lodges
The entities listed above will usually have C3 restricted planning ( Holiday let use only), which links them to the business use to which they must be put; holiday and short term let.
Mortgages to buy a holiday letting business
Mortgages to purchase or refinance a leisure or holiday let businesses, with or without a trading history, can be sourced on commercial terms.
Commercial mortgages are assessed differently from the standard single unit buy to holiday let mortgages offered by banks and building societies.
They are underwritten manually, by real people, that understand and specialise in the leisure industry.
Loans are available to various entities, including SPV Limited and trading Limited Companies ( personal guarantees required), partnerships and individuals.
Typically, lending is on a capital and interest basis, over a maximum term of 25 years, however it’s possible to get 12-24 months interest only in the case of a start-up.
A commercial lender will ask for a CV from an applicant and a business plan, detailing their vision for the business.
If an applicant has no experience in tourism and leisure, it’s not an issue, as long as their transferable skills are not too much of a stretch in terms of credibility.
If the business has good accounts, so much the better, but if not or it’s a start up business, the lender can work from the projections of a credible agent and a Red Book valuation.
Ultimately the maximum loan, within the LTV limit will be determined by the numbers.
Commercial lending in the leisure sector, which includes Holiday let businesses, remains a specialist area of activity and is almost exclusively introduced by experienced brokers.
They know exactly what lenders are looking for- so can propose a case in a way that gives that give the right impression of the people and business, enabling a would-be lender to feel comfortable with the case.
Author: Mark Lanario