The origins of this holiday let case go back around eight months, when we received the initial exploratory enquiry.
James, a self-employed website designer from London, had always dreamt of living away from “the smoke” and had decided that now children were on the way the time was now!
Having locked in their earlier property gains by not constantly remortgaging to take capital out of their home, the family had been ideally positioned to quickly secure a perfect family home; not a million miles from the popular holiday destination of Southwold, in Suffolk. He had ported his existing loan with his current lender to the new house and had increased it slightly.
A month after his completion, the enterprising James was on the phone to Holiday Let Mortgages, asking for some advice. The purchase was a farmhouse and he and his wife had been talking about the possibility of developing the outbuildings and barn into one two bed and two three bed luxury holiday cottages and then retaining them as a holiday letting business, which his wife would run.
Our holiday let mortgage consultant drilled down into the numbers and could see very quickly that the long term business made real sense. Not only was the holiday letting demand in the area very high, but also James had the skills to build and market the business through a website. Moreover, if his wife was on-site running it and he was marketing it then they would be cutting out managing agents fees. Our consultant confirmed that the rental coverage was not going to be a problem.
They then went on to talk about the development itself. James had no experience in this area. This was not helpful at a time when lenders were nervous about lending money even to construction professionals! In addition, there was no formal planning permission. After a long conversation, talking headline figures and broad principles, our consultant said that it was well worth James approaching a local architect and arranging a site visit. Whilst the planning application and building regulation drawings are important, it was as important to design a property that holiday makers will love living in. A badly designed holiday let property could be a disaster.
A good architect will already know what and what will not be allowed by local planners and will arrange the whole project from start to finish. More importantly, he will be able to give an NHBC or equivalent insurance guarantee.
Anyway, James thanked our broker 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 his shopping list fulfilled: planning consent for three cottages (one with full residential usage, but two with restrictions requiring them to be used for holiday letting only), a build warrant and a fixed price NHBC builder’s contract.
Since talking to us, James had contacted his existing mortgage lender. He had been their client for a long time. The interest rate that he had ported was excellent and was trying to get a similar rate for his project. He did not expect the response he got. It was short and sweet – “NO”! Additionally if he were to build other dwellings on the site, they wanted their loan paid back immediately and in full. Wow. He wished he’d never asked and was worried that he had put his loan at risk.
He called Holiday Let Mortgages and we suggested the right approach. He should request that they release part of the land such that he could create a separate plot with its own title deed. The lender sent out their surveyor and he sanctioned the split. Moreover, in the surveyors opinion James would not have to pay back any of the existing mortgage.
Result: James was had an unencumbered plot with full planning permission, value £270,000, a total build cost (including “soft costs” i.e. architects’, finance costs etc.) of £280,000 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.
Because 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 bank’s Relationship Manager.
Once the build was complete, the bank, as anticipated, expected to have their loan repaid and the second stage our plan came into force. We approached a specialist holiday let lender who took over the now completed project and charged a lower interest rate.
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 us, for a residential loan so everyone’s a winner!