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MORTGAGES FOR BUSINESS 2019 - FINANCING HOLIDAY LETS

A quick guide to:

Financing Holiday Lets


How easy is it to get a mortgage for a holiday let? The exponential rise of AirBnB and similar sites is encouraging landlords to diversify into holiday lets as the returns can be considerably higher than buy to let. But how do you finance these properties and will your existing BTL lender allow you to switch income model? Here are the answers to the questions we get asked most frequently. Will I need to remortgage to turn my buy to let into a holiday let? Probably! Most buy to let mortgage contracts require properties to be let on Assured Shorthold Tenancy agreements. ASTs typically start as fixed terms of six months to three years which means that lets for shorter periods are not permitted. How will the lender know if I switch my property from a buy to let into a holiday let? If a holiday-maker can find your property online, then so can your lender! When applying for a buy to let mortgage, lenders will always check to see if the property is listed on AirBnB and similar sites, particularly if the property is in a tourist area. If you already have finance in place and decide to switch from buy to let to holiday let, the lender may not check but this doesn’t mean you won’t be found out. We’ve helped several landlords who have been in this situation. Which lenders offer holiday let mortgages? Some buy to let lenders provide specific mortgage products for holiday lets, others lend under a broader commercial mortgage remit. Although borrowers can go directly to a few lenders, to get access to the entire holiday let mortgage market, you will have to use a specialist broker. If you want to ensure you get the best deal for your specific circumstances, we recommend the broker route. How many lenders offer holiday let mortgages? Currently, there are only eight properly active lenders in the holiday let mortgage market. Of these:

Only four or five will lend to portfolio landlords, i.e. landlords with 4 or more distinct mortgaged buy to let properties.

Only three will lend to limited companies.

What price are holiday let mortgages for personal borrowers? Rates start from c.1.65% discounted for two years, with 2-year fixed rates from c.1.85% and 5-year fixed rates from c2.30%.


If you're a portfolio landlord, one lender is offering 2 year rates from c.2.44% and up depending on the required loan to value. Lenders will take their debt serviceability calculations based on AST rental income rather than projected holiday letting income. What price are holiday let mortgage rates for borrowers using Ltd companies? If you are using an SPV, 2-year fixed rates start at c.2.89% and 5-year fixes from c.3.38%. Personal guarantees will be required from directors. You will most likely have to cover the lender’s legal costs and some lenders will also take a debenture over the company. Whether you’re borrowing personally or through a company, all lenders will offer interest only terms. Expect arrangement fees up to 2%—most of which can be added to the loan. Which mortgage lender is best for holiday lets? In our opinion no one lender stands out from the crowd. Most will assess debt serviceability based on AST rental income not projected holiday let income. Many will require the borrower to have earned income of between £10,000 and £25,000 pa; others may need £40,000 pa. Whether or not you are a portfolio landlord, lenders will take into account all your borrowing across your entire portfolio, including your home mortgage commitments. They will also take a close look at your personal expenditure, cross-referencing tax returns and rental bank statements! This means that if you are after high loan to value for a holiday let acquisition, unless you are a pro-footballer or barrister – forget it! Where can I get a larger loan for a holiday let? If you are looking to borrow a larger amount, it may be worth using a limited company. Do take specialist advice first though! Lots of our residential landlord clients own properties in a limited company, particularly those who are High Net Worth individuals and who don’t need to draw a wage from the company. They often prefer to pay corporation tax on the profits of the company rather than paying income tax at 40% to 50% on rental profits! And of course, they are building up funds in the company to use as a deposit towards another holiday let. We have access to a commercial lender that takes a pragmatic approach to these deals. They can lend to landlords with four or more mortgaged rental properties and to limited companies. These lenders have an in-depth understanding of nuances of the market. They can lend between 60% and 75% loan to value with repayment mortgage terms of 15-25 years. Some will even offer interest-only facilities. Their arrangement fees can be negotiated and they will accept projected holiday letting income over standard AST rental income.

Contact us today to discuss a your holiday let mortgage requirements! CALL 0345 345 6788 | EMAIL enquiry@mortgagesforbusiness.co.uk ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.


MORTGAGES FOR BUSINESS 2019 - FINANCING HOLIDAY LETS

Commercial mortgage for new holiday let and glamping business The clients: A married couple working full-time for a local council in Wales. Looking for a change in lifestyle, the pair had set their sights on a large holiday let in a picturesque village not far from their home. Both husband and wife planned to quit their day jobs, move into the holiday let and run it as a business. The couple were owners of a small holiday let in the late 90’s, but have no experience in running a large holiday let complex. The property: An 1800’s 6-bed detached house valued at £700,000. The impressive property comes with 73.8 acres of land, a cart house, stone barn, stable block, 2 Dutch barns, loose cattle shed and kennels. The vendors were letting a large portion of the land to local farmers – this agreement would continue with the new owners. Prior to launching their holiday let business, the couple wanted to make some improvements – including the construction of two glamping pods. The pair estimated the works would take around 12 months to complete. During this time, they planned to live off savings, rental income from the land let to farmers and the surplus from the sale of their home. The finance: The sale of the couple’s home would give them a deposit of £350,000 and leave them with enough to live off for the foreseeable future.

Property value: £650,000 Loan amount: £300,000 (46% LTV) Rate: 3.99% Term: 25 years capital & interest Lender arrangement fee: 2% of the loan amount Mortgage payment: £997

The finance options available to the couple were limited due to: Applicants with limited experience. A new holiday let business. Owner’s accommodation on site. No proof of deposit. Applicants no longer employed. Tight timescale. The application process: Before we approached a lender, we helped the couple put together a business plan. The plan included details of the estate agent who would be assisting the couple in sourcing tenants and the projected rental income of £89,635 per year (minimum). We sat down with a business development manager from one of the high street lenders and discussed the case. Happy with the couple’s savings, business plan and report from the local estate agents, the bank made a formal offer within one month.

Need help sourcing holiday let finance ?

Call us today on

0345 345 6788 Visit mortgagesforbusiness.co.uk

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Financing Holiday Lets  

A quick guide to financing holiday lets... - How easy is it to get a mortgage for a holiday let? - Holiday let finance FAQs - Holiday let ca...

Financing Holiday Lets  

A quick guide to financing holiday lets... - How easy is it to get a mortgage for a holiday let? - Holiday let finance FAQs - Holiday let ca...