We specialise in holiday let mortgages and that gives us a very unique insight into the “minefield” of issues facing the unwary when trying to organise a property loan in this market without professional help.
Most of our work doesn’t need to be written about, but those of you that have visited us before may be aware that case studies are how we like to emphasise mortgage cases that have required a particularly knowledgeable approach to achieve a successful outcome for our clients. Here is another such case study for you, that for the customer involved really brought the “minefield” of issues into focus for him, when he attempted to organise a mortgage to purchase a new build flat for himself using Money Supermarket Mortgages to compare holiday let rates and products as a start point.
Andrew got in touch with us after experiencing complications that he termed “frustrating and perverse”, when trying to purchase a new build flat on the Devon coast, using a holiday let mortgage.
Andrew told our advisor Mark that he was looking to purchase a “stunning 2 bed seaview apartment, with a 999 year lease, at a price of £550k. “
He told Mark that these “initial occupation” apartments (58 of them) had been developed from an old Hotel that once stood on the site, but unlike similar conversions in the area, the developers had been granted full residential usage on the whole site, in return for accepting a larger local infrastructure levy. Andrew then went on to tell Mark he had tried to organise a holiday let mortgage without help, based on advertisements that lenders issue to differentiate themselves and gain market share. Unfortunately, the advertisements often fail to emphasise the negative aspects in their lending criteria and the poor enquirer can be left frustrated at best, or at worst out of pocket.
Andrew gave Mark his back catalogue of calamity!
The first lender that he had contacted had said they would lend up to 65% LTV on a new build flat and could stretch to 70% LTV in some cases, but in receipt of his application the lender came back and told him they could not proceed due to being over their exposure limit on that development. On receiving this news Andrew had called another lender and was told “We don’t lend on new-build flats.” Andrew told us that the reason that they gave was rather vague and involved “unknown demand and re-saleability” etc. The lender had also told Andrew that they classed conversions which have never been occupied as new build, using the phrase “ initial occupation”.
Andrew, not a man to give up had tried yet another lender and received the same response. He said that by rejection number 3, he was getting a little “miffed”, as with 35% deposit he thought that lenders would be “falling over themselves” for his business. He told us that the following day after a period of reflection, he had continued searching and found a Building Society that initially sounded a good bet. After asking the question “do you take new build flats or newly converted buildings “, not once, but twice and being told that they did, all seemed to be a goer to Andrew.
He was asked to complete an application over the telephone and was informed that he had met the personal lending requirements. The conversation then moved on to the property and its use. This is where Andrew had received yet another bombshell – this lender would use BTL rental, as determined by the valuer, to drive the loan size, unless the property came with accounts.
Andrew asked why the lender had advertised holiday let mortgages for new build flats at 70% LTV in good holiday locations, when there was no possibility of getting a loan above 40-45% LTV because they used BTL rental to drive the loan, which made no sense whatsoever. He received no satisfactory answer, so brought that conversation to a close quite quickly.
Mark agreed that there is something of a paradox in some lenders’ holiday let lending criteria that states new build or initial occupancy conversions are acceptable to 70% LTV, which of course does not actually work if BTL rental income is used to assess the loan size. The good news is that we at Holiday Let Mortgages have access to a lender that will lend on new build/initial occupancy conversions, based on projected holiday let rental income. In this case the projections supplied would support a loan of 65% LTV, subject to valuation.
As the conversion had been completed a month before and Andrew was able to supply a complete application form and supporting documentation, the purchase completed in 5 weeks without incident. Andrew was delighted with the service and referred his business partner, who went ahead with a purchase on the Penthouse in the same development!