Most people come to Holiday let Mortgages, based on our name; after all the clue is in the name! They might come for a mortgage, but often they leave with a whole lot more as the following case study amply demonstrates.
Rebecca telephoned and told us that she lived in South Devon and wanted to remain in the area as her family ties were there and the lifestyle was “idyllic”.
She had, however, seen a property in the area that consisted of a main house, with attached annex, plus three barn conversions. The annex, plus barn conversions were currently in use as a holiday let business. The price tag, she said, was £1.5M. She liked the idea of moving into the main house and continuing with the holiday letting business but was totally confused about how to finance such as purchase, as it seemed to fall between two stools, being neither residential nor holiday let.
Our Consultant told her that whilst mortgages for such properties are rare, there are specialist lenders that have gone out of their way to understand the market and are highly active looking for good business of this type, which is more generally known as semi-commercial.
Mark told Rebecca that her intention to live at the property may give a lender a little more flexibility when considering the affordability of the purchase, as both personal income and the holiday let income can be factored into the equation when assessing maximum loan size.
Then Mark asked the million dollar question “How much deposit do you have?” Rebecca said that on sale of her current property, after allowing for Stamp Duty on the purchase, £300K.
Mark told her that the minimum a lender would accept, income and rental allowing, would be £600K.
The conversation then went on to the potential for her parents funding the deposit shortfall. Our consultant said that this may be possible, however the lender would want a “deed of gift” executed meaning that the money was non-returnable. Rebecca said that would be a non-starter as she had two Brothers and that when such conversations had cropped up before the situation was regarded as “too difficult”.
Mark then talked about the future and in particular, the health and ages of her parents. Rebecca told him that they were in good health for a couple in their 77th year, but recently her Father had undergone a knee replacement which had prompted a family discussion about where their parents would live if they became unable to manage on their own in their own home. One of Rebecca’s brothers lived overseas and had expressed concern that he felt remote from the situation. One option they had considered was selling their parents’ home and their parents moving in with one of the children living in the UK and it was this that was troubling her brother living overseas.
Mark suggested that the proposed purchase might be an ideal solution. If their parents were to sell their current home and jointly purchase the mixed-use property with Rebecca, thereby assisting with the deposit, they could move into the fully self-contained annex. Whilst Rebecca thought that the idea was “brilliant” she thought that although her brothers would like the proximity and care element of the arrangement, the family discussion would again be “difficult” as the parents’ money would be seen as having been given to Rebecca leaving her brothers with no potential inheritance.
Whilst everyone would recognise the benefit of keeping the money in the family and not having their potential inheritance eroded by long term care fees, Rebecca’s parents would want her brothers’ inheritance protected in some way. Mark said that this should not be a problem at all and that rather than purchase the property as “Joint Tenants”, whereby all parties to the purchase own the property equally and it passes automatically to the survivors should one or more of the parties die, they should set up a “Tenancy in Common”, which specifies ownership of shares in the property and allows each party to leave their share in the property to whomever they wish on death. Mark said that this is a very flexible arrangement that can be legally drafted to recognise and protect the interests of Rebecca’s brothers.
Rebecca said to Mark that this sounded like an ideal solution and that she would organise a family meeting for when her overseas brother was back in the UK.
A couple of weeks passed and Mark received a call from Rebecca with news. The meeting had gone well and the family had voted unanimously to go with the plan as they thought that “now was the time”. Rebecca asked Mark to recommend an experienced property lawyer to draw up the “Tenancy in Common” agreement for the purchase as well as dealing with the normal conveyancing for both sales and purchase. He was pleased to provide the recommendation.
The case went forward quite quickly. The sales of both properties went without a hitch, as did the purchase of the multi-unit mixed use holiday let. Mark knew the holiday let mortgage side of the transaction would not be an issue, because the income from all sources was more than adequate to justify the loan size when combined with the larger deposit provided from the sale of the 2 properties.
The case awaits completion.