Holiday let ‘live/work’ case study

At Holiday Let Mortgages, we deal with many different types of mortgage enquiries as you can well imagine; single archetypical white walled cottages, multiple dwelling part commercial/part residential properties and entire holiday parks, are all in our business mix. We enjoy the simple, but thrive on the work involved in the more challenging, complex mortgage cases we come across.

If you have looked at our holiday let mortgage case studies or Q&As, you will notice quite a few multi unit/trading business holiday let cases.

This is our most recent, where the mortgagor intends to live/work at the business.

Last month, we received a new enquiry from a customer looking for a way to finance the purchase of an existing part residential/part commercial holiday let business. He told us that he’d already spoken to his Bank, but they had told him that trading holiday let businesses were not an area of business lending that they were active in.

JP told us that he had recently sold a business and was looking for a new challenge. He had found a trading holiday let business in Torquay on sale at £1.2m, which consisted of 11 leasehold flats, which in turn formed part of a multi -unit freehold block with full residential use in the planning. JP told us that he intended to live in one of the flats and manage the remaining 10 flats as a holiday let business and this was to be his only source of income. He would use the sales proceeds of his current home as deposit for the purchase but would still need to borrow £400k to complete. At that point he was using the sales proceeds of his previous business to support himself.

As part of the sale, the business came with a website that provided all of the current occupancy/availability information and the vendor, although not resident, dealt with change overs and logistics rather than using an agent. Full trading accounts were also available and showed a pre-tax net profit of £120K (based on letting 11 flats), but as the current vendor had no finance secured against the property, there was no need to notionally add back interest payments to the bottom line. Because JP intended to occupy one of the flats himself, we told him that the underwriter would add reasonable costs to cover his occupation and deduct notional business revenue for that flat from the figures provided by the vendor’s accountant when assessing the affordability of the loan.

JP said that he intended to increase the income the flats were generating by refurbishing them to 5 star standard, at a cost of approx. £50K and we advised him that the underwriter would rightly see the potential for an interruption of business income, so would require evidence of savings in the background to cover the loss of income. Additionally, we told him that because he was to occupy less than 40% of the square footage of the property, the loan application would be classed as non-regulated under FCA rules, allowing more freedom for an underwriter to apply a common sense approach to the assessment of the business income.

Because this was a trading business with full trading accounts available, the lender did not require JP to have unrelated income from other trade or profession and asked JP to provide:

  • a business plan for the target purchase
  • proof of deposit
  • proof of savings
  • 3 Years Profit and Loss accounts for the target holiday let business
  • an up to date CV
  • 3 months personal bank statements
  • last set of accounts for his recently sold business
  • evidence of sale proceeds of his previous business

Once we received the information, we could see that JP’s previous business had been well run and his CV was of the right calibre for an underwriter to feel confident in his ability to run the target business optimally. Moreover, because JP was able to evidence that he enough in existing savings to support the loan whilst the flats were being stage refurbished, an underwriter would not insist on the all the flats being ready for letting immediately, thereby allowing JP to go ahead with his proposed improvements once the property had been purchased.

We submitted the case for JP and received an agreement in principle the same day.