It’s an unusual situation and one which can be difficult to navigate: getting a holiday let mortgage if you don’t already own property. In this article, we will address the issue of trying to secure holiday let mortgage if you’re either a first-time holiday let buyer or don’t own any property.
First-time buyer vs non home owners
Non home owners
When it comes to mortgage applicants who don’t own the house they live in or any other property, the main concern for holiday let mortgage lenders is the risk of what’s known as a ‘back door residential’ transaction, something which is illegal and very dangerous.
A back door residential is when the mortgage applicant doesn’t possess their own property and doesn’t meet the lender’s requirements for getting a residential mortgage. To get around this problem, they pretend that they are purchasing property for letting purposes but in reality, their actual intention is to buy a residential home to live in themselves.
Despite the difficulties that can arise if you don’t already own property, there are various circumstances that many mortgage lenders allow as real-world exceptions to the home ownership rule. Here are some examples:
- You live in tied accommodation that is provided by your employer (such as armed forces, onsite groundmen and live-in teachers) and so have had no need to own a home.
- You moved in with your partner who already owns the property you now live in, so there has been no need to buy a home.
- You are renting currently, due to work, in a location where you don’t want to make the commitment of buying a home.
Lenders are extremely vigilant about the situations above and you can fully expect them to do their research to ensure they’re looking at a legitimate mortgage application. Lenders will look at the address of your work vs the address of your home vs the address of the proposed holiday let property and if they are close together geographically, your argument for eligibility might be weakened.
The term ‘first-time buyer’, as a standalone concept, is really a measure of experience of owning property and being a landlord. Most holiday let mortgage lenders allow first-time landlords and do not require prior letting experience, so long as you have a solid rental projection from a professional agent to ensure you can afford your monthly payments. They would therefore normally allow first-time buyers, so long as they are confident after assessing the back door residential risk.
That being said, having prior home ownership experience does provide comfort to mortgage lenders, and in particular, is essential for expat buyers who normally have to demonstrate that they have previously owned, or currently own at least one UK property, before getting an expat holiday let mortgage.
Other qualities necessary for a first-time buyer to get their holiday let mortgage approved are more or less the same as for an experienced property owner. They include:
- Substantial deposit
- Cash for stamp duty, the cost of which should be reduced
- Minimum income requirement
- Minimum rental projection
- A property that meets the surveyor’s requirements for a mortgage
So, can I get a holiday let mortgage?
As holiday let mortgages aren’t widely understood in the property market, there’s only a handful of mortgage providers to choose from. What’s more, the lending criteria for holiday let mortgages, some of which you can see above, are far stricter than residential or buy-to-let mortgages.
The reason for this is that mortgage providers deem holiday let properties a bigger risk to lend to, and so applicants must tick many boxes to be seen as a safe bet. In the majority of cases, holiday let mortgage criteria stipulates that applicants must own at least one property or if they don’t, there must be a good reason, as we have discussed. Essentially, in the eyes of the mortgage lender, the applicant must be financially secure and experienced enough to manage their monthly mortgage payments.
If you’re unsure about your eligibility for a holiday let mortgage, we are here to help. Thanks to our expert understanding of the market and knowledge of what mortgage lenders will and won’t accept, we can help you to get started on your journey.
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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.