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Holiday Let Mortgages

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          We have been specialising in holiday let mortgages since 2006 and have accumulated a deep understanding of all types of holiday let finance.

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        • Holiday Let Mortgages is an Independent Mortgage Broker specialising since 2006 in mortgages for holiday let properties.

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        • HOLIDAY LET GUIDES

          We have a lot of resources to help you with your holiday let. There are quite a few guides plus many articles on how we can help people successfully invest in a holiday let property.

        • Holiday Let Mortgage Guide
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        • HOLIDAY LET ARTICLES & CASE STUDIES

          There is lots of useful information in our article and case study sections. Built up over many years we share new developments in lending attitude and also client case studies for the more difficult holiday lets!

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What size deposit do we need for a holiday let mortgage?

You are here: Home / Articles / What size deposit do we need for a holiday let mortgage?

Deposits for holiday lets

In order to get a holiday let mortgage, you will need to provide at least a 25% deposit. The reason that the deposit required for holiday let is slightly larger than some buy to let mortgages, is that lenders view the risk associated with short term letting as higher than buy to let (BTL). This is due to the seasonality of the rental income stream. BTL is seen as being more predictable for the two main reasons that it is a larger market and secondly because rental contracts (Assured Shorthold Tenancy) are usually 6 months so there is an income stream. You could argue that the predictability of BTL is not that good and the reality in BTL can be very different.

Given that there is no AST in the case of a holiday let mortgage, a level of income, either a projection or existing, must be demonstrated in a format prescribed by that lender. This is irrespective of whether you are trying to achieve the maximum loan size advertised  loan to value (LTV) by that lender or at a much lower LTV.

Holiday let Rental Income, buy to let and max LTV

It is important to differentiate between lenders who offer mortgages that allow holiday let in their terms conditions but strangely use potential AST rental income for their loan size calculation and those who genuinely will use the holiday letting income for the calculation. Unfortunately, some of the lenders in the former category offer great interest rates and so are very attractive, but the consequence of using the AST income for calculation leads to lower permissible loan sizes than are normally requested by purchasers.

This of course often presents a problem, as generally property in areas of the country that are desirable holiday destinations, and thus produce a good return as holiday lets, are not areas where there is great demand for longer term tenants. Thus the BTL demand is less and AST rents are less. The reverse is also generally true.

The exceptions to the above are lenders who normally use BTL income but if the property is an existing holiday let with provable income, will use those figures. However, they will need to be confirmed by reference to accounts or actual rental statements.

The holiday let lending market is not new and the lenders who have been in it for a while are comfortable with it and assess income from a holiday let in a more expected way. The applicant is required to approach a letting agent with a specific property in mind and request a projection. This projection must state the anticipated income for the low, medium and high season week and include a total gross income figure. At the time of writing, the lenders that offer standard products, take an average of the low, medium and high season weeks, multiply by 30, then apply an income coverage ratio (which is a safety margin calculation) of the monthly mortgage payment requiring to be covered by 145% using a stressed mortgage interest rate of 5.5%. One lender will use 5% if a 5 year fixed rate product is chosen, which has a consequence of giving a slightly larger maximum loan for the same rent.

In Summary

Although standard holiday let products are advertised at just 25% deposit, it is advisable to use the services of a good mortgage broker who understands the implications of the lenders varying approaches. If a property is non-standard or is a complex where a more commercial product is required, a broker is an essential part of the transaction.

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Category: ArticlesTag: buy to holiday let, deposit for a holiday let mortgage, holiday let mortgage

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CONTACT US

Holiday Let Mortgages

1st Floor, 140 Long Lane
BEXLEYHEATH
DA7 5AH

T 020 8301 7931
E mortgages@holidayletmortgages.co.uk

QUICK LINKS

Holiday let mortgage guide

Guide to UK holiday lets

Holiday let mortgage criteria

Holiday let articles

Holiday let tax

WE LIKE TO TALK

Please contact us whether you have found a property or project that needs financing or you are just in the early stages of forming a plan.

It’s often an advantage to discuss the financial side of a deal before everything has been agreed. So please call us on 020 8301 7931 and tell us your holiday let ideas.

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