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If you’re hoping to buy a holiday let, you might be surprised to know that the mortgage application process might not be as simple as you’d expect. A holiday let mortgage is different to a regular residential or buy-to-let mortgage and the number of lenders who offer mortgages for holiday lets is significantly lower than standard properties.
It is essential that you get the right type of mortgage for your holiday let as using a residential, second home or buy to let mortgage for a furnished holiday let could be a breach of contract with the lender, and that is something you must never do.
Holiday let mortgages are a specialist area of finance with many “hidden” trapdoors, meaning that navigating this space can be very tricky if you don’t know what you are doing!
Holiday Cottage Mortgages (HCM) is the UK’s leading holiday let mortgage broker who specialise only in this niche field, and, together with Sykes Holiday Cottages, work with thousands of clients each year, helping them raise finance so they can enjoy the holiday let experience.
In this article, we will discuss the key mortgage criteria that you’ll have to meet in order to qualify for a holiday let mortgage.
Mortgage lenders will usually specify a minimum personal (or earned income as it is sometimes called), requirement from a job. The minimum income will vary depending on the lender in question and could be anything from £20,000 to over £40,000 per annum.
The minimum income requirement will also be affected by your status as either a sole or joint applicant. For a sole applicant the minimum income could be £25,000, for example. For joint applicants, the lender might stipulate that one applicant must earn a minimum of £20,000 or there should be a combined joint income of at least £30,000.
If you are employed then you’ll need to provide the mortgage lender with your last 3 months of payslip figures. If you are self-employed and looking for a holiday let mortgage, or employed by a company that you actually own, then you will need to provide the last two years of accounts and the last two years of “Tax Calculations” from your HMRC Self-Assessments.
Lenders are very picky about credit, and for holiday let mortgage applications, they want to see a squeaky-clean record. Before they will lend to allow you to buy a second or third home, they want evidence that you are a solid bet!
They’ll want to check that you haven’t run up any significant short-term debt or failed to make finance payments in the past. Even something as simple as a missed mobile phone payment or a forgotten Next catalogue direct debit payment can cause issues.
For these smaller types of credit blips, there may be ways around it by working with an expert like Holiday Cottage Mortgages, but if you have defaulted on an actual mortgage payment in the past few years, then you will likely be seen as a bad credit risk and getting a holiday let mortgage will be difficult.
To secure a holiday let mortgage, you will need a reasonable deposit; a larger deposit than would be needed with a residential mortgage. Generally speaking, you should expect to pay a minimum deposit of 25%, while interest rates and fees will also tend to be higher than with mainstream mortgages.
It’s vital to holiday let mortgage providers that your property is considered as suitably secure to allow for lending. Fundamentally, lenders want to see that the property in question is a regular, residential property that could be sold on the open market without any problems, in the event of a payment default.
Lenders will also want to confirm that the property lease or deeds don’t contain any clauses that might prevent holiday letting as an activity. There might be occupancy restrictions in the area, or the property might be built on a holiday park, for example. Irrespective of location, you will need to meet the criteria for the minimum property value of £50,000.
Most mortgage lenders will also want assurance that the prospective holiday let is of standard construction – wooden lodges, boats or shepherd huts will raise big red flags!
There are further complex property requirements, including things such as:
You should be confident that your property will work successfully as a holiday let. Lenders will need proof of the projected gross rental income to ensure that your mortgage repayments can be met by the holiday let income. To get a realistic estimation, it is essential that you get support from a reputable holiday letting agent, such as Sykes Holiday Cottages, who can provide you with a credible projection.
Mortgage lenders will typically expect you to make a gross rental income from your holiday let that is 145% of the mortgage payments, when calculated at 5.5% interest rates (known as a stress test).
At present, lenders are generally not willing to accept rental figures created by the property owner if they are self-marketing using a platform such as Airbnb or Trip Advisor. Therefore, in order to qualify for a holiday let mortgage, using the services of a professional holiday letting agent, such as Sykes Cottages, is essential.
HCM’s purpose is to enable you to realise your opportunity of holiday letting by providing a specialised, digital broker service, focussed solely on holiday lets, quickly and simply.
Founded by holiday letting experts, HCM brings together a broad and deep understanding of the holiday letting industry with professional and authorised mortgage broking, all delivered through an intuitive, easy to use, online platform. With our combination of expertise, skills and technology, HCM presents a unique market offering and we are proud to be the UK’s number one expert in this field.
Get in touch with us today by calling 01372 365 795 or by visiting www.holidaycottagemortgages.co.uk and get your free, initial assessment from an expert to find out if you qualify for a holiday let mortgage.
The information contained in this article is accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time and so please speak to one of our Consultants to confirm the most accurate up to date information. Nothing in this article constitutes financial advice. Please always consult your accountant or solicitor for all financial, taxation or legal matters. Your home may be repossessed if you do not keep up repayments on your mortgage. Pure holiday let, buy to let and commercial mortgages are not regulated by the FCA.
*Based on a 7 bedroom property in the Lake District with bookings between October 2017 to September 2018.
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