We have found a converted Barn in South Devon that we wish to purchase for use as a holiday cottage. There is a problem though – the lender we found on a mortgage comparison website, declined our mortgage application citing, “unacceptable security, 12 -month holiday let restriction”. The Estate Agent did not tell us about this restriction and we didn’t ask.
Our questions are:
- What are holiday let occupancy clauses?
- How would one affect us?
- Can you do anything to help us please
These questions are often raised by customers trying to finance holiday let and serviced accommodation property.
What are holiday let occupancy clauses?
They are also known as holiday let restrictions, usage restrictions or section 106 restrictions. These are a placed on a property by the Local Authority Planning Department at the time that planning is sought/approved. They can be worded in different ways, dependant on how the Local Authority wants to control use of the property. Some clauses are worded in a way that allows 12 months holiday let use only, with a max occupancy of 30 days by one “occupant”. A clause that we saw recently was very specific in that it stated “11 months occupancy, for a maximum of 30 days by one occupant, the property must be vacant during the month of February”. Other occupancy clauses may state 10 months a year, on a similar basis.
Just to clarify, as we have had developers saying otherwise, these clauses are fully enforceable by law.
So, how does a holiday let restriction affect you?
Well, as you have found, arranging finance for a restricted property is not something that you can do on a mortgage comparison website or through a mortgage broker’s standard sourcing software. They are specialist commercial mortgages, arranged on a bespoke basis.
It is possible to appeal to the Local Authority to have a holiday let occupancy clause removed and, if they reject your application, take your case to the Secretary of State for the Environment. There is no certainty that they will overrule the Local Authority. You would be better advised not to purchase a restricted property rather than buy it in the hope that the restriction might be lifted on appeal. Certainly, if you are planning to retire to your holiday let, a restricted use property is out of the question, because it does not have full residential use.
If you are looking at investment return, it is usually higher as a percentage of the purchase price than a property that has full residential usage, because they tend to be less expensive to buy. This is because they are tied to a particular market and use, rather than the property market as a whole. Investors expect a certain level of return for the risk that they are taking.
What can we do to help you?
Arranging mortgages for such properties requires a special holiday let mortgage. As the value of any property is derived from the use to which it must be put, mortgages on restricted properties are more commercial in nature then a standard holiday let mortgage, because of the tie to the Holiday Market.
We should be able to help you, as this type of property is of standard construction and readily saleable, which is important to lenders. We also finance properties of standard construction, that are on certain quality holiday parks.
If you would like us to assist with your case, please contact us and speak to one of our specialist holiday let mortgage brokers