Let’s face it, applying for a mortgage can be arduous at the best of times, with what can seem like endless financial admin and form filling – and we’re sorry to say that holiday let mortgages can be even more complicated! The lending market is considerably smaller than with residential or buy-to-let mortgages and you likely won’t be able to get a holiday let mortgage from your high street bank.
Luckily, HCM is here to help! With our expert understanding of the holiday letting market, we are able to arrange a mortgage on your behalf, saving you invaluable time and a lot of hassle. And here, we’ve put together our ultimate holiday let mortgages guide; covering everything from finances to favourite locations, read on for plenty of tips and tricks, and a real insight into the world of holiday homes…
Are holiday homes a good investment?
In short, yes! Holiday homes have the potential to reap great financial benefits, so long as you do plenty of research before you buy and are prepared put the work in once you own.
In order to generate a good profit, there are two crucial steps. First, you’ll need to maximise revenue by securing regular bookings. Second, once you’ve got people in the door, it’s essential that you provide a getaway to remember; happy customers mean positive reviews and return trips, both of which are fundamental when it comes to establishing a financially successful holiday let.
Read more: The business model for holiday lets
Read more: Top 5 ways to make your holiday let stand out
A thriving market
If you’re hoping to get into the holiday let business, it’s good news, because the market for staycations has never been more popular! More and more people are choosing to go on a self-catered holiday in the UK – it only takes a second to Google ‘holiday cottages’ and you will be inundated with options. We’re also seeing a rising number of luxurious holiday homes which promise guests an outstanding stay. Thanks to these improvements, UK holiday homes are becoming a popular choice for everyone.
This surge in UK getaways has had the knock-on effect of more people buying holiday properties on home soil. There’s never been greater demand from the public, especially as more people are choosing self-catered cottages over hotels.
The Covid effect
An unprecedented pandemic which has caused chaos globally and created an uncertain future for travel, Covid 19 has predictably had a huge impact on the holiday letting industry. With the question of vaccination passports and ever-changing lockdown conditions across the border, it is arguably far easier and less risky to book a UK holiday than one abroad.
For the same reason, self-catered holiday homes are far more preferable than hotels; there’s no need to mix with people if you’re wary of catching Covid, while the problem of drinking and dining in public during a pandemic is also solved.
Read more: The effect of Coronavirus on holiday letting
How are holiday let mortgages different?
Even with the holiday let market growing ever-more popular, securing a mortgage can be far trickier than with buy-to-let or residential mortgages. Because holiday let mortgages are a specialist area, there are far less lenders out there; at the moment we would estimate around 18 dominant mortgage providers, and these can be tricky to find.
Holiday let mortgage deposits
It’s not what you want to hear but with holiday let mortgages, you will need a large deposit, usually 25% to 35%. You might also be surprised to learn that the process of putting down your mortgage deposit is rather technical, and you will need to understand the concept of loan-to-value: the maximum amount that a mortgage lender will agree to loan you, in relation to the value of the property.
Lenders will also want to know where your deposit money has come from and will require proof of your deposit. They will want absolute assurance that you’re in a viable position to purchase a property and continue with your mortgage payments regardless of how successful your holiday home is. For this reason, lenders will require a lot of information about your initial deposit and insist that you pay a large sum.
Read more: The ultimate guide to holiday let deposits
How to get a holiday let mortgage
Those lenders that do provide holiday let mortgages will have strict criteria which need to be met. These include a minimum income requirement; proof that you have a reasonable deposit; and a guarantee that your projected rental income is high enough. You will also have to be a certain age and already own a property.
Read more: Holiday let mortgage criteria you need to be aware of
Mortgage lenders
If you’re looking for a good mortgage provider, the first step you’re likely to take is to search for one online – but this generally isn’t very helpful! Many holiday let mortgage providers don’t actively promote their services, while many won’t show up immediately in an online search.
You might have heard of some of the suitable lenders, such as Leeds Building Society, but the names of other established leaders in the holiday let market are unlikely to spring to mind – The Cumberland, Principality or the Teachers Building Society, for example.
Read more: Holiday home mortgage lenders
How to choose your mortgage lender
Before you begin your mortgage application, it’s important to do your research to find a provider that’s perfect for your unique situation. If you aren’t prepared, there’s a risk that you’ll find one particular lender and think, “this looks like the right one for me,” only to find out later down the line that they weren’t!
First and foremost, you need to check whether the mortgage provider actually lends on holiday lets. Then it’s time to ascertain whether the provider will accept your income situation; will find you the best mortgage rates; and will lend to the type of property that you’re trying to purchase.
Read more: Choosing a holiday let mortgage lender
The problem with the direct approach
We would strongly advise against approaching a holiday let mortgage lender directly! The reason for this is that every single person has unique a situation and it is common that there will be some sort of complication during the application process. So, if you’ve gone straight to the lender and there’s a problem which prevents your application from being successful, you’re back to square one.
If you’re working with an expert mortgage broker such as HCM, the hard work is done for you. We have close relationships with the key mortgage providers and are aware not only of their lending criteria but can also find the best mortgage rates out there. This will prevent you from wasting time and energy applying to a lender that’s not the right fit.
Read more: The evolution of the traditional mortgage broker
What will lenders want to see
To be in with the best chance of getting a holiday let mortgage, you’ll want to find a property that lenders will approve of – in other words, nothing that could pose a risk to their loan!
Finding the right property
It’s vital that you have confidence in your property and its potential as a holiday home. As mentioned above, lenders will require proof of your projected gross rental revenue, in order to ensure that your monthly mortgage payments can be met by your income.
The property itself must meet certain standards too, as mortgage lenders must deem that it’s suitable security to allow for lending. They will want to see that the property is of standard, stable construction, while they will also examine its title deeds to establish that it is fit for purpose. Other issues include occupancy restrictions in the area.
Read more: How to get a holiday let mortgage
Location, location, location
You might be dreaming of a Cotswold cottage, vying for a dwelling on the Cornwall coastline, or undecided on the best location for your holiday home. Whether you’ve set your heart on a specific location or not, there are a number of factors to consider.
Most importantly, you need to check that there aren’t any restriction rules in place that prevent holiday lettings – this is the case in St Ives in Cornwall – and that the property prices are affordable. Then, it’s time to think of potential guests and what they want in a holiday home. You’ll want a place that’s easy to get to and with parking easily available; somewhere where there are plenty of amenities; and a setting which has plenty to offer in form of local attractions, beauty spots and family-friendly activities.
Read more: Buyer’s guide to holiday let locations
Read more: The top 10 places to buy a holiday home in the UK
What not to buy!
It’s all too easy to focus on what you want to buy and be swayed by a glorious countryside view, magazine-worthy interiors or prime position by a golden beach. However, it’s vital to remember that when it comes to lending, mortgage providers will have different criteria to buyers!
Mortgage lenders will primarily want to confirm that your holiday home is suitable security against their loan, and there are specific things that they will not want to see! The condition of the property is paramount; it must be liveable from day one with fully working utilities and be sound structurally. They won’t lend against somewhere which is falling down or in need of brand-new electrics, for example.
They will also want assurance that the property is of standard construction – no wooden lodges or shepherd huts – and that there are no occupancy restrictions in place to ruin your letting plans. Other potential issues include proximity to commercial buildings such as pubs and takeaways, as these could spoil a guest’s peaceful getaway.
Read more: Holiday let mortgages: properties to avoid
Other types of mortgages
Remortgages
People generally wish to remortgage for one of two reasons – they don’t currently have a mortgage and wish to raise money; or they are looking to replace their mortgage to get a better rate. The former, where you’re looking to raise capital, can be surprisingly complicated, while the latter ‘like for like’ remortgage is relatively straightforward.
With a like for like remortgage, it’s important to do your market research and find the holiday let lender who will provide you with the best interest rates. Alternatively, there’s the option to do a product transfer, which means staying with the same mortgage provider and on the same contract but moving to a better interest rate. HCM can help you in both cases!
When it comes to raising money, the situation is far more complex. Mortgage lenders will require a lot of information about what you plan to do with that money. Divorce settlements, gambling debts, replenishing savings or paying large tax bills will raise red flags!
Read more: Understanding holiday let remortgages
Light refurbishment mortgages
Holiday let mortgage lenders will want to see that your desired property is habitable and lettable essentially from day one – not somewhere that’s in need of constructive work or hefty repairs. The reason for this is that if you fail to make your monthly payments and your dilapidated property is repossessed, the lender will find it difficult to sell on the open market.
High risk properties include those which don’t have functioning utilities, are in need of structural repair, have ‘old-age’ problems such as damp, and lack a usable kitchen or bathroom. If you want to buy somewhere that only requires cosmetic upgrades, lenders will be far more willing to approve your application. They will want assurance that you’re able to complete the work within a specific time frame and require proof that you have the necessary capital, both to fund the work and cover the mortgage payments without rental income.
Read more: Light refurbishment mortgages for holiday lets
Airbnb mortgages
If you’re hoping to secure a holiday let mortgage and market on Airbnb, you’ll be disappointed to hear that some mortgage providers will not allow it. This is because a number of lenders view Airbnb as too big a risk to lend to. Though it might be similar to competitors such as Booking.com and Expedia, there have been too many sensationalist – and wholly negative – stories in the media surrounding Airbnb.
In our experience, most lenders prefer to see marketing done through professional letting agents, who boast a wealth of experience and can promote your holiday home to the widest audience.
On the other hand, if you’re hoping to remortgage and use Airbnb, lenders will generally approve. You will just need to provide them with financial information in order to prove that you’re able to generate a good income from your holiday home. This will typically be evidence from the last 12 months of bookings, including the gross amount you charged to the customer and the net amount which you received.
Read more: Airbnb mortgages
To conclude…
Whether it’s understanding loan-to-value lingo, navigating lenders or figuring out the legalities, there’s a lot of work involved when applying for a holiday let mortgage. Why not save yourself the stress and leave the hard work to us?
Founded by holiday let experts and with extensive understanding of the market, not to mention solid relationships with the lenders, we’re authorised to arrange your mortgage for you.
From your first initial assessment when we can check you’re eligible for a holiday cottage mortgage, to scouring the market for a lender that’s best-suited to your individual situation, right up until the application itself – we are here through every step of the process.
Get started now, by filling out a free application here.
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FCA disclaimer
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. You understand that by clicking any external links on this page that you will be leaving the website of Holiday Cottage Mortgages and we cannot be held responsible for the content of this external website. Please always consult your accountant or solicitor for all financial, taxation or legal matters.