At Holiday Let Mortgages we like to try and help our customers understand what it is that we do by using real case studies to bring our work to life.
We are known for being able to source specialised holiday let mortgages for mixed use and multi-unit properties.
These cases usually involve some sort of arrangement where the owner is intending to purchase a multi-unit holiday let property where the whole site is an investment or a situation where the owner is going to live in one of the dwellings onsite and run the other dwellings as a holiday let business. The use of such multi-unit properties is often restricted by a Section 106 occupancy restriction limiting all or part of the site to holiday let use only.
This does not mean that the site has full commercial use, the restriction is in place to protect the local infrastructure from the social and domestic demands placed on it by full time occupancy.
This case study is a little different and the application itself is so new that the underwriter has only just sanctioned it in principle, so here it is:
Last week we received an enquiry and the customer told us that he and his wife had found a property in Robin Hood Bay, a popular tourist destination.
The property was described to us as consisting of a ground floor café and sandwich shop, with a 4 bed apartment above, all on one freehold, purchase price £350K.
The customer told us that a search online for a mixed use holiday let mortgage had brought up Leeds Building Society, whom he had called in the first instance.
On contacting the society, our customer had been told that although holiday Let mortgages were available, the security had to consist of a single unit with full residential use in the planning to be acceptable.
In addition, the call centre operative said that the loan size would be driven by buy to let (AST) rental income unless three years’ accounts for the business were available.
We told the customer that this situation was quite common, but there would be options available from lenders that offer loans in the semi commercial mortgage market.
Norman, our broker dealing with the case for Holiday Let Mortgages, asked to see a picture of the property, because he knew that underwriters liked to see the potential security. He duly received an e-mail and immediately knew that any underwriter would be impressed by the rather quaint looking sandstone building, with its old fashioned style shop frontage.
Norman went on to ask the applicants about their current employment and income, because he knew exactly what the lender would want to see in terms of background financials and experience. Because the applicants required a loan of 70% LTV, the loan would need to be supported from two different commercial rental streams.
He asked about the tenant of the shop; in particular, how long the incumbent had traded from the premises and how long remained on the lease. The answer was there was a 7 year trading history and 10 years remaining on the lease at £7K per year, which Norman’s preferred lender for mixed use situations would be more than happy to accept at its full value. Initial enquiries regarding the income being produced from the apartment appeared less favourable, with only £10K per annum shown in the accounts. Norman told the applicants that in this case they should request projections from a holiday letting agent as it was clear from the accounts that the apartment was not being run at an optimal level; probably it was being used by the current owners as a second home rather than an out and out holiday letting business. The applicants duly obtained a rental projection letter for the high, medium and low season weeks’ occupancy, which showed a total of £17K gross per annum, assuming full occupancy during the season.
Based on the applicants’ CV’s, financial position, the quality of the security and the 2 rental streams, as declared on their application and confirmed by the supporting documents submitted to the lender, their application was agreed in principle at 70% LTV, subject to valuation.
We await a successful conclusion of the case.