At Holiday Let Mortgages, we receive enquiries relating to mortgages for both simple and professional holiday let, in equal measure. Usually these arise from internet searches based on very specific phrases.
Simple holiday let property would be a single unit (house or flat), purchased as a private individual or held in a limited company and generally is intended to provide a secondary income with the applicants retaining their main sources of income.
Professional Holiday Letting has many nuances and facets. Mortgage solutions for complex, multi-unit, mixed use type of lending, which involves an element of, or is wholly for holiday let, invariably requires a bespoke lending approach. Inflexible, pre-set lending criteria would be a barrier to lending in complex cases, because they tend to involve unique variations in security, people and purpose.
At Holiday Let Mortgages we do our best to tell you how we work, by using our large back catalogue of case studies. This is our most recent multi-unit, mixed use holiday let purchase case, where the applicant decided to hold the property in a limited company.
Mr RP’s case:
As we are very active on the internet, we always ask our customers what they as searched for and in this case it was, “multi-unit limited company holiday let mortgage”.
Right from the start, we knew that the customer was looking at something quite complex; being classed as professional or a trading business holiday let.
The customer told us that he had found a small trading holiday let business in Cornwall, which consisted of a main house and 4 outbuildings, which were restricted to holiday let use only. The vendor was a limited company and all of the buildings were seasonally let; income producing, with professionally produced accounts available.
RP told us that he intended to use the property in a different way, which he believed would increase the potential income, so was concerned that the accounts would not fully reflect his idea for the property. His plan was to sell his existing property, which would raise 40% deposit on a purchase price of £1.9M, then relocate to the target property.
RP and his wife were to live in the main house and his wife was going to run the holiday let business. As the couple were to occupy less than 40% of the property we told him that the case would be classed as non-regulated under FCA rules, therefore more reliance would be placed on the commerciality of the business and less on personal income.
The couple ran a successful fire protection company, which had been trading for 10 years, and were drawing £200K in PAYE and Dividends from their company, leaving a reasonable retained profit- which over the years had built up enough to provide the deposit for the purchase. RP and his wife had taken advice from their accountant on the best way to fund and hold the business. The accountant had suggested that there were two ways to purchase the business: an asset purchase or a share purchase.
In the case of the share purchase, RP could either use an SPV (Special Purpose Vehicle) or his trading company to purchase the shares in the company that owned the holiday let business. Using this method, there would be a charge of 0.5% stamp duty on the company share purchase. Overall, the saving for RP would be around £135,300.
The accountant had warned, however, that the legal due diligence required to ensure that no undisclosed legal or financial liabilities of the vendor company existed, could amount to £15K or more. The lender advised that they would insist on separate legal representation for themselves, given the complexity and due diligence involved, and that RP would be responsible for paying both sets of legal costs.
In the case of the asset purchase, either an SPV or the trading company, would purchase the asset itself, with SDLT payable at a higher rate. RP decided, on the advice of his accountant, that the share purchase was the route to be taken.
In order to progress the case further, in addition to the usual application requirements the underwriters requested:
- 3 years’ accounts for the Fire protection business
- 3 years’ full accounts for the trading holiday let business.
- Detailed business plan to include projections and cashflows forecasts based on their new plans.
- Copy of site licence