Q: Where can I find out about the requirements for getting a holiday let mortgage?
A: Holiday let mortgage criteria vary greatly from lender to lender and can be quite difficult to find in their literature and even more difficult to understand. Lenders have tried to differentiate their products from their competitors and positively try to offer something unusual. So, something as simple as offering the best interest rates is seldom enough to rely on. The smaller Building Societies, who tend to be the ones that are actively involved in lending on property that will be short term let, cannot compete with larger lenders on interest rate alone, so they compete on mortgage criteria, by accepting say, a property with an annex etc, or 75% at 500K etc.
Commercial lenders, that lend on holiday rental business, which are usually multi-unit complexes, don’t have published lending criteria, which is actually a good thing, as this type of case needs flexibility. These cases, which are often accounts driven need to allow for standard commercial assessments of those accounts e.g. EBITDA (earnings before interest, taxation, amortisation and depreciation) which is the true reflection of whether the profits are enough to service a new loan.
Q: Can I use my buy to let mortgage for Holiday Letting?
A: Almost certainly not. At the very least you will have to notify the lender of this change of use. Most of these mortgages specify in the mortgage criteria and terms and conditions, that the occupancy must be a long let tenant on an AST (Assured shorthold tenancies). Even the Building Societies that do offer holiday let mortgages and have the same products as they offer to BTL customers (hence the name buy to holiday let mortgages), won’t let an applicant switch between the two styles of occupancy. If an applicant requests a holiday let mortgage, the loan is assessed by reference to projection holiday let rent or accounts. If subsequently a borrower wishes to switch onto buy to let, the lenders permission would need to be asked and an credible assessment of AST rent provided.
Q: How do Holiday Let Mortgage lenders determine the max loan to value (LTV)?
A: Holiday Let mortgage providers will take a parallel view to BTL . The maximum loan will be based on the maximum allowable for a given rent OR the max LTV a lender allow – whichever is the lower.
The max LTV in most cases is 75%, although for larger loans this can be less. Accounts or projected holiday let rent, as distinct from AST rent, also produce a maximum allowable loan. Once the short term let rental is known, lenders apply a rental coverage stress test, which again varies between providers and is why understanding holiday let mortgage criteria is quite tricky.
If a property does not come with accounts, e.g. because it has not been let before, the lender will request that an applicant provides a letter from a recognised local or national holiday letting agent, stating the holiday let GROSS income, for low, mid and high season expressed as weekly rates, and then combined into an annual projected income total. The letter must be from a credible source, one that the lenders surveyor will recognise. The letter is provided to the lender at application stage, and the lender will apply its stress test. In the case of calculation of the max LTV for larger holiday let business, it really is highly complex, so use the services of a good specialist broker.