Holiday Let Mortgages for Scotland

Scotland has always been a popular destination for holiday makers from the UK and abroad, thanks to its picturesque landscapes, vibrant culture, and beautiful historic cities. Whether it’s a modern apartment in Edinburgh, cosy cottage in the Highlands, or pretty house on the coast, there’s a lot to tempt buyers who are hoping to purchase a holiday let property. However, buying and operating a holiday let in Scotland isn’t the same as elsewhere in the UK. In this article, we will explore the Scottish holiday let mortgage process and highlight key areas of typical mortgage lender criteria.   

Licenses for Scottish holiday lets

To run a holiday let in Scotland, it’s legally required for owners to obtain a license; to operate without one is considered to be a criminal offense. As explained on the Scottish government’s website, “You must obtain a license before you take bookings or receive guests.” If you let out your property on a short-term basis without a proper license, there’s the risk of getting a £2,500 fine and being prohibited from applying for a license for the following year.

The rules set by the government are strict and stipulate that a license is needed, “Even if you occasionally let out a spare room or sublet while you’re on holiday.” If you’re interested in buying a property to rent out in Scotland, it’s worth noting that the application process can be lengthy – up to nine months – and the decision will be made by the local council.

Due to its popularity with tourists, there are even tighter rules around holiday letting in Edinburgh. According to The City of Edinburgh Council, the whole area has been designated, “A short-term let control area.” Prospective owners are required not only to apply for a letting license but may need to get planning permission to operate a holiday let.

Mortgage lenders for Scottish holiday lets

We’ve spoken before about the fact that when purchasing a holiday let property, there are fewer mortgage lenders in the market, when compared to those who work with regular residential or buy-to-let mortgages. In the case of Scottish holiday lets, there are even fewer mortgage providers to choose from; the majority don’t have the legal infrastructure required to handle Scottish law and therefore aren’t willing to lend against properties in Scotland.

Scottish Building Society is one mortgage provider which works with holiday lets and offers the most flexibility for buyers; according to the website it offers loans up to £350,000. However, the Scottish Building Society assesses mortgage applications on a residential basis rather than a rental basis. It requires information about an individual’s income (usually minimum of £40,000) and outgoings but doesn’t factor in the property’s expected rental income whilst it’s operating as a holiday let. In other words, any additional income earned from the holiday let won’t be considered; getting a holiday let mortgage can therefore be difficult, because the buyer’s incomings will be considerably lower.

Other lenders who are willing to work with Scottish holiday let properties include Cumberland Building Society, Hodge Bank, Foundation Home Loans, Bath Building Society, Furness Building Society, Leeds Building Society, and Penrith Building Society.

A suitable property

As with all holiday lets across the UK, mortgage lenders for Scottish holiday lets will have certain criteria which the property needs to meet. These include being of standard construction, in good condition both structurally and cosmetically, and being lettable from (more or less) day one. In addition to such requirements, there are criteria more specific to Scottish holiday lets. These include:

• The property generally has to be on the mainland, not one of Scotland’s islands. If the property is located on an island, it must be connected to the mainland by a road bridge.
• The property can’t be too remote. An example would be a cottage that’s nestled in the highlands and is completely off-grid and far away from any amenities. Such properties are difficult to value and are therefore regarded with caution by lenders.
• The property, if a flat, will normally be freehold. While freehold flats in England and Wales are rare, they’re far more common in Scotland. Generally speaking, mortgage providers don’t like to lend to freehold flats, but in Scotland its usually fine.

To conclude

Buying a holiday let property in Scotland can be complex and give rise to various issues which often, people aren’t aware of. Imagine a buyer who already owns one holiday let property and so has experience with this specialist type of mortgage, who wishes to purchase a stylish apartment in Edinburgh or pretty cottage in the Highlands. Even if they’re familiar with how holiday let mortgages work, they might not know of the Scottish law surrounding holiday let ownership and licenses, let alone understand the different red flags that could deter mortgage providers to lending to them. Perhaps the apartment is freehold, or the cottage is extremely isolated; in either case, the situation could be too risky for lenders.

Such examples show how buyers can fall at the first hurdle, should they apply for a Scottish holiday let mortgage without help from a specialist broker. For this reason, we’d recommend that buyers work with an expert who not only has experience working with holiday let mortgages, but who knows how to navigate mortgages for Scottish properties and can avoid the various difficulties that they pose.

This is where we can help you! For more information about buying a holiday let property with HCM, in Scotland or elsewhere in the UK, contact us.