Mortgages For Multi-Unit Holiday Lets

When you’re looking to purchase a holiday let property, you might come across what’s known as a ‘multi-unit holiday let’. This occurs when there are multiple building structures listed under one property title, such as:

• A block of flats either stacked vertically, or side by side.
• One main residential house with smaller outbuildings, all on the same grounds.
• One main residential house with an attached annex, often called a ‘granny annex’.

When it comes to getting a holiday let mortgage for multi-unit properties, there are important measures that come into place when deeming a property’s status. For example, the individual places must all have their own heating, metered utilities and a front door. If they don’t have such qualities, they won’t fall under the title of a multi-unit holiday let.

Sound confusing? Don’t worry as we’re here to help! In this article, we will explain what multi-unit holiday lets are and most importantly, how we can help you to navigate the mortgage process, which can be complex.

NB: it should be noted that multi-unit is different from mixed-use. The latter occurs when you have numerous buildings on one freehold title, but the owner lives in one of them, and rents the others out commercially as a holiday let. We will address that situation in another article!

What is a true multi-unit holiday let?

Imagine the following scenario: a buyer purchases a large Victorian townhouse in Brighton and converts each floor into completely independent, separate flats, but without putting a lease onto each one. In this case, you have a multi-unit freehold building: all flats are under one freehold title, but instead of being one building on it, there are effectively four. In other words, you can’t purchase one individual flat. This is a pure multi-unit freehold building.

How do you qualify as a true multi-unit?

There are a couple of tests that must be passed for the building to be named a true multi-unit. The most important is that each dwelling must be completely independent. This means that each unit must have its own heating controls, metered utilities, a lockable front door, and some will even have their own council tax.

True multi-unit holiday lets: flats

With holiday letting, we do see the above situation of a pure multi-unit; where someone buys a multi-unit freehold building and wants to individually rent out each of the apartments. There are mortgage lenders who will accept such mortgage applications, such as Monmouthshire Building Society.

Other types of multi-unit holiday lets: converted outbuildings and annexes

What’s very common with holiday letting is for there to be a main house with separate converted outbuildings on the grounds, and this situation is usually different.

It’s very rare that converted outbuildings will be given full residential permissions. In other words, when you look closely at the planning permission for the buildings in the grounds, while they are separate buildings that are liveable, they are classed as ‘holiday use only’ and will generally depend upon the facilities of the main house. Though they might appear to be independent, they aren’t really at all, because the boiler, gas and electrics all run off the main house’s supply. So, in this case, the buildings are deemed to be “annexes”.

How do you get a mortgage on these properties?

We frequently see people trying to get a holiday let mortgage on this sort of property. We have to scan the property documents to see whether there is more than one functional building on the land title. The key indicator – and what underwriters will look for – is the number of kitchens on the floorplan.

If there’s more than one kitchen, we can conclude that there is more than one habitable component to the property. Then we have to do a close inspection to see where that component is and ask:

• Is the property a true multi-unit: in other words, is there residential permission to fully live in the second building?  To qualify, the space must have its own utilities; gas and electrics supply; and a private front door.
• Is the property just an annexe off the main house, which is either attached or unattached?

It’s very important to determine which of the two cases is correct, as the difference to mortgage lenders is huge.

Annexes

If the space is an annexe, there are more mortgage lenders who’ll view the property as, to put it in the simplest terms, ‘a normal residential style property with something in the garden.’ In other words, it isn’t a true multi-unit property.

Let’s use the above scenario as a case study. You purchase the property, which consists of a main house and a smaller annexe. You then rent the holiday let out as one booking. This could work well for a family booking, where the parents and children stay in the bigger house, while the grandparents stay in the annexe, which has its own kitchenette and living area.

Even if you did choose to let the main house and annexe out separately, this usually won’t phase the mortgage lender. The mortgage lender will assess the situation as they would for a residential mortgage: it’s a main house with a small building in the garden, but the annexe isn’t fully habitable as an independent residence.

It might be your main intention to rent out each building separately. For example, you purchase somewhere that has one main farmhouse that sleeps eight guests, as well as two converted outbuildings that each sleep four guests. Your holiday let is listed online, with each house available to book separately, as its own entity. Of course, if the availability is there, you could also book all three houses for the same duration.  If it’s your main intention to rent out the various homes to different guests and you say this from the outset, then it might be necessary to provide the lender with a number of rental projections:

• A rental projection for the holiday lets as one booking.
• A rental projection for each separate component, if they were to be booked independently of each other.

Most lenders won’t actually be that interested in your letting strategy, and it wouldn’t normally be a breach of your mortgage contract either way – so long as you have a holiday let mortgage on the property as a whole.

Independent outbuildings

Mortgage lenders will see a red flag where the smaller unit on the property could be used completely on its own, as a main residence – a true multi-unit holiday let. If they lent on such a property, the owner could purchase it and put a one- or two-year assured shorthold tenancy (AST) in the outbuilding. Then, if the owner fails to make their monthly mortgage payments, the lender couldn’t repossess the property – either the main property or the smaller one – as there is a tenant living in the outbuilding who has legal protection to live there.

The same problem doesn’t apply to annexes, which is why mortgage lenders aren’t wary of them. The reason being that you couldn’t live permanently in an annexe.

The two types of annexe: attached and unattached

We’ve been talking above about a property with a garden annexe that’s running off the mains power and utilities. This is an unattached annexe. The other scenario is what’s commonly called a ‘granny annex/flat’ or an attached annexe. Let’s look at the following case study:

You’re looking at the floor plan of a property and you see a standard home but with a second kitchenette. What’s happened is that someone has put an extra door with a lock on it to separate the residence into two and create a granny annexe. Really though, it’s all part of the same house. Even though there’s a second living area with kitchenette and bedroom, it’s all within the footprints of the same property and so essentially, is one home. This needs to be explained carefully to the mortgage lender so that they understand there’s no possibility of the owner putting a long-term tenant in the annexe.

To conclude

When it comes to multi-unit properties, mortgage lenders will examine the property and its floor plan closely, to determine the risks involved with their loan.

If the property has an annexe (either attached or unattached), the lender won’t normally worry too much because there isn’t any chance of a tenant moving into the annexe permanently as a long-term let.

If the property’s smaller unit is set up to allow long-term tenants, there are only a few mortgage providers who will loan on it.

Where can we help?

At Holiday Cottage Mortgages, we would look at the property in question on Right Move, for example, and question whether we can see any evidence of there being a separate unit anywhere in/on the property. Signs would be a second kitchen, any smaller buildings or divisions of the floorplan.

If we do find anything, we will work with you to do a deep dive and determine what the exact setup is: is it a true multi-unit, or just an annexe? Once we know this, we can decide what direction to go in with mortgage lenders.

Most mortgage lenders won’t openly publish their stance on multi-unit properties or properties with annexes, but we have the experience to handle the situation. We know how to navigate potential problems. For example, with the following scenario:

We have a customer who wants to get a holiday let mortgage on a house that has an unattached annexe in the garden. On first glance, the mortgage lender would see evidence of a second kitchen/building and assume that the situation is too risky to lend to. However, we know that annexe isn’t suitable for housing a long-term tenant and so doesn’t pose a problem. We know how to communicate this to mortgage lenders and help you to avoid a failed application.

If you have any more questions about multi-unit holiday lets, or getting a holiday let mortgage, get in touch here.