Holiday Let Mortgages
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Holiday Let Mortgage Rates
The Holiday Let mortgage market is a fairly specialist sector within the industry, and the advice of an expert mortgage broker can be essential to a successful holiday let business, especially when it comes to the interest rates offered across the various lenders. Being a niche market, the choice of lenders offering this type of product is reduced, but this does not mean that you will see uncompetitive rates. The interest rates you see associated with a holiday let will be the same as those for any other kind of Buy to Let mortgage, and the rate you get offered will be down to a few factors, such as:
- The size of deposit or amount of equity
- Your credit history
- The property type
- Anticipated rental income
It’s worth discussing all the above with an experienced mortgage broker with knowledge of the specialist holiday let market before making your application, in order to ensure you find the right product and lender to suit your circumstances.
Holiday Let Mortgage Information
How do Holiday Let Mortgages work?
There are only slight differences between the way a Holiday Let Mortgage and any other kind of Buy to Let mortgage works. Because these loans are designed for properties that will be used solely for holiday or seasonal rentals – rather than for an assured shorthold tenancy (AST) or as a house of multiple occupancy (HMO) – the lender will assess the amount they are willing to allow you to borrow in a different way. Instead of using an annual, monthly or weekly anticipated rental income, the lender will take an average across the expected spread of high, mid and low-season rates in order to find the final figure, and may also expect you to have a minimum personal income apart from the rental revenue for extra security.
Can I get a Mortgage for a holiday home?
Anyone can apply for a Holiday Let Mortgage – whether you will be granted the loan will depend on the lender’s criteria when they assess your financial history and the possible revenue from the property. You should always bear in mind that you must state the property’s intended use – lenders will need to know that it is solely for holiday letting, and not a standard Buy to Let investment, nor for residential use. This also applies to properties let via AirBNB.
If you are purchasing a property to use as your own holiday home, not for letting out, then mortgage lenders will view this as a second residence. Therefore, they will assess the level of affordability according to the usual criteria of personal income, expenditures and level of equity for a residential mortgage, rather than the anticipated rental revenue from the property.
What are the criteria for a Holiday Let Mortgage?
A Holiday Let can seem like a lucrative and therefore highly-tempting opportunity to someone investing in property, appreciating the potential for high rental yields. It’s worth remembering, though, that while properties of this type will generate exceptional rents during popular seasons, there will be other times of year when they are less competitive, or sit vacant, and due to this complexity of the market, lenders have criteria that are more specific to this sector. As ever, the actual lending criteria for holiday let mortgages will vary from one lender to another, but there are few that will apply across the board:
- Applicants must already own their own home
- Minimum age limit of 21
- Minimum personal income (other than that from this potential holiday let) of £20,000 PA
- Maximum loan value calculated using average rental income across high, mid and low-season rates
- Minimum deposit of 25%
A lender may have many of their own extra criteria that they will use to assess an applicant’s eligibility, or have a variant on one or more of the above, so it is best to discuss your options with an experienced holiday let mortgage lender, who will have an up-to-date knowledge of lending criteria of providers across the whole market, many of which you will not find advertising on the high street.
How much deposit do I need for a Holiday Let?
Outside of the methods used to calculate how much the lender is willing to let you borrow, a Holiday Let Mortgage is viewed in the same way as a standard Buy to Let mortgage. So, if the prospective property is to be used exclusively as a holiday let, you can expect lenders to require a deposit of around 25%, although there may be some who will be willing to accept as low as 15%, giving you a loan-to-value rate of 85%. If you are simply buying a property to use as your own holiday home, then it will be viewed as a second residence, and the deposit expectation will be in line with that for a standard residential mortgage – around 10%.
How much can I borrow with a Holiday Let Mortgage?
Being aware of how much you will be able to borrow against a property will be a crucial factor in determining whether the investment will be a viable proposition. Income from a holiday let will naturally vary throughout the year according to seasonal demand, rather than being the set regular amount you would expect from a standard assured shorthold tenancy, so most lenders will assess their level of lending using an average or spread of the potential rental income across the high, low and mid-season rates.
The lender will then apply a stress rate to this figure – usually assuming an average rental level of 125% of the mortgage payments in order to allow for costs and follow periods, and an average amount of letting throughout the year of 30 weeks. For example:
- High season – £700
- Mid season – £500
- Low season – £300
Average rate = £500 x 30 weeks = annual rental figure of £15,000
They would then work backwards from this figure to find the level of affordable mortgage payments per year, and then work out how this would progress over the extended life of the mortgage, allowing for interest payments, to calculate the total amount of money they are able to lend. The maximum loan on a property attracting the rent as above using a 5-year or longer fixed-rate deal of 5% would give a maximum mortgage of £206,896 (subject to any maximum loan-to-value criteria).
Holiday Let Mortgage Lenders
Due to the Holiday Let sector being quite specialist when it comes to mortgages, and often perceived as a higher risk, the range of lenders offering loans in this sector is narrower than for other kinds of mortgages. However, this does not mean that you will encounter uncompetitive interest rates, and there are some well-known, familiar lenders who will offer favourable rates to Holiday Let landlords, as well as a number of smaller building societies and specialist lenders.
The differences will lie in the criteria that each lender will use when considering your application, with mainstream lenders being notoriously more stringent than their more flexible specialist counterparts. We recommend you do some thorough research into the market before making a decision, or talk to a specialist mortgage broker who will be able to give you your best options.
Can I get an Interest-Only Mortgage for a Holiday Let?
With rental yields on Holiday Lets being less predictable or stable than those for standard Buy to Let properties, with a risk of frequent periods where a property is vacant, it’s natural that property investors in this sector will seek to keep their mortgage payments as low as possible, in order to minimise their risk. Hence, we are often asked: “Can I get an interest-only mortgage for a holiday let?”
Fortunately, the answer is positive. A Holiday Let Mortgage can be arranged in the same way as a standard Buy to Let mortgage, and can therefore be interest-only or capital-plus interest payments, or indeed a mix of the two. You must bear in mind, though, that if your mortgage is arranged on an interest-only basis, you will need to have an adequate repayment plan for the loan in place.
Are Holiday Let Mortgages more expensive?
It’s true that with fewer lenders offering Holiday Let mortgages there is less competition within this niche sector of the Buy to Let market, but this has not yet resulted in higher rates and uncompetitive terms, and you should not expect a Holiday Let mortgage to be any more expensive. This said, you will still need to meet the lender’s individual criteria for creditworthiness and affordability, which may mean that you will be faced with a more expensive loan if you are not perceived as suitable by the lenders with cheaper rates.
Can I get a Holiday Let Mortgage with Bad Credit?
When applying for any kind of mortgage, a blemished credit history will have an impact on your application. Which may result in it getting refused, or being offered only a less-attractive product than that which you were aiming for. When considering a Holiday Let mortgage, the chances of this happening are even greater due to the limited number of lenders who offer this kind of product, and it can be difficult to find a suitable lender to meet your needs.
This said, it is still possible to get a Holiday Let mortgage with bad credit, and specialist lenders will take a range of factors into account when making their decision. The type of bad credit event and the length of time since it occurred will have a lot of bearing, as will your more recent credit history and your current financial status. If you can show you have recovered from an unfortunate situation that is now firmly in the past, you will be on much firmer footing. We strongly recommend speaking to a specialist mortgage advisor with knowledge of the Buy to Let and Holiday Let markets about your situation.
Holiday Let Mortgage Advice
It can be a daunting enough experience to apply for a standard mortgage, but add to this to the trials of negotiating the stringent criteria around the Holiday Let and Buy to Let markets, and you can end up feeling trapped in an impossible labyrinth. With fewer lenders involved in the Holiday Let mortgage market, you will face less choice in the products available and could be forgiven for thinking this might make it easier to identify the correct one for your circumstances.
However, as many of the lenders in this niche sector are not so well-known, they are also often less accessible to personal borrowers, and are often only approached via a specialist broker or intermediary. Added to this the variances in criteria between the lenders and you can face a highly time-consuming task in researching and contacting all the ones you need to work out whether they will be able and willing to meet your needs.
Talking to a specialist Holiday Let Mortgage broker will be the fastest and easiest way to find the right mortgage to suit your circumstances, whilst feeling confident that nothing has been missed out. At The Mortgage Centres, we offer free initial consultations and no-obligation quotes, so you can see for yourself the options that are open to you and make informed decisions about your Holiday Let business. Get in touch with us today.