Q

We are having a problem sourcing a 70% mortgage to purchase a property to be used as a holiday let in Wales. Our case has been agreed in principle at a holiday let mortgage lender, however is failing their safety margin affordability calculation.

It’s our preference to have the loan set up on a capital and interest basis, over 18 years. The lender is insisting that the only way that they will accept the case is if we opt for an interest only mortgage. The reason is that we are living in the tied accommodation (in Wales), that goes with my Headteacher’s position at a private school. We need the loan paid down and have proved to the lender that with a supplement from my income, the mortgage is easily affordable.

Unfortunately, the lender is sticking to its guns on this matter and is insisting that interest only is the only acceptable payment option. My wife has now tried to compare holiday let mortgages on a comparison website and we telephoned a lender. They said that we must be “owner occupiers”, to qualify under their holiday- let mortgage criteria. Our circumstance is that we are not because we are in accommodation tied to a job.

Our question is:

Is there a lender that will allow us to set up the mortgage on a repayment basis, but calculate the affordability on an interest only basis and to accept us although we are not owner occupiers?

Regards, Phillip

A

We can understand that in your circumstances, a repayment mortgage (capital and interest) would work best, with the option of additional overpayment?

There are some lenders that calculate rental affordability on the actual basis, that being capital and interest and won’t accept the fact that you have the personal financial resources to ensure that the loan is covered. In their view, the reason is the loan should stand alone, and if they had to repossess the property it has to be mortgageable to the widest market. That means the rental income has to be able to support the loan because a good proportion of buyers may not be able to assist the mortgage out of spare personal income.

That said, we can help you.

In fact, we see quite a lot of applicants that are in tied accommodation, with the same idea as you. We have a lender that will allow the loan to be set up on a capital and interest basis, however calculate affordability on an interest only basis. In addition, overpayments of up to 10% of outstanding capital in any year are allowed without penalty during the initial product period.

If you would like us to assist, please contact the office and one of our specialist holiday let mortgage brokers at our office will help.