Holiday let mortgages: Do I need a broker?

We have previously discussed how the emergence of online brokers, such as HCM, have changed the landscape when it comes to applying for a mortgage; they remove the need for face-to-face meetings and endless paperwork, provide a service that’s easily accessible regardless of location, and have the expertise to work through complicated issues on their client’s behalf.

However, not all types of mortgages are the same. People applying for a regular residential mortgage (and in some cases a buy-to-let mortgage) can easily access information about mortgage rates, which are openly published online and on comparison sites. Therefore, it’s natural that someone applying for a holiday let mortgage would assume that they can take the same route: cutting out the middleman by disregarding brokers and going directly to the lender.

In reality, holiday let mortgages are a highly specialised area of finance and aren’t offered by most mortgage lenders, making the journey far more difficult to navigate than with a standard mortgage. Let’s face it, applying for any type of mortgage can be an arduous process, and so it’s evident that in complex cases, such as those that arise with holiday let mortgages, brokers can provide invaluable advice and assistance.

If we question how things could be made easier, the answer is obvious: let a holiday let mortgage broker help you!

How can a mortgage broker help?

Dealing with the unexpected

It’s common for mortgage applicants to believe that they meet all of the necessary criteria to secure their mortgage – they have a reliable income, deposit in the bank, a clear credit history and no history of debt.

However, we know from experience that there are always going to be “bumps in the road” when it comes to holiday let mortgage applications.

The main reasons why holiday let mortgages are so much more fraught with potential risk is down to the following key points:

• Manual underwriting: many lenders sell this as a positive, for example: “At our society, you will get personal treatment from an individual underwriter, there’s no ‘computer says no’ problems here!” Sounds good right? The flipside is that underwriters can get it wrong! If that happens, there might not be a way back and the mortgage application can be cancelled. The way in which information is presented to an underwriter, and how the context of a complex situation is explained, is absolutely key to success, and it’s something which takes years of experience to get right.
• Lenders are far pickier when it comes to holiday let properties: from underwriting criteria to acceptable threshold levels, there are far higher expectations when it comes to an applicant’s credibility. This includes the level of earned income, debt levels, the holiday let’s expected rental income, and of course the property itself.

Let’s look at a working example: a 45-year-old man wants to purchase a £500,000 home which has a smaller outbuilding in the grounds. He has a stable income of £80,000 per year, a deposit of £100,000 sitting in the bank, and presents no red flags as an applicant. He believes that the process of getting a mortgage will be relatively straightforward but is unaware that the property poses potential problems because it has an outbuilding on the title deeds. He applies, directly to a lender, for a holiday let mortgage and gets rejected – the end.

A holiday let mortgage broker, on the other hand, would immediately flag this situation and do the necessary work to check whether the property is viable for a mortgage. For example, does the outbuilding have its own boiler, its own electricity meter and gas meter, is it truly independent of the main house? All of these points matter. So, when questions from the lender inevitably arise, the broker will be armed with the correct paperwork and be able to answer those questions without delaying the process.

The above situation is just one of numerous issues that might arise and shows how using a mortgage broker can swiftly navigate proceedings so that there’s less risk of a mortgage falling through.

Holiday let mortgages aren’t standard

Mortgage applications are highly individualised, and no two situations are the same, especially with regards to holiday let mortgages. For this reason, it can be reductive to use one of the many formulaic mortgage calculators which are prevalent online and to assume that if the result is a positive outcome, that it’ll be easy to secure a mortgage without external assistance. Although such tools can be useful, they can only provide a rough indication when it comes to figures and someone’s eligibility for a mortgage. Things are far more complicated in reality. Therefore, providing information directly to a mortgage broker is a much more efficient method, as they can use this information to test out various scenarios and situations to see how a solution can be crafted. The client therefore isn’t faced with a generic answer in black and white; something that would happen if they went it alone.

It’s also worth noting that holiday let mortgage brokers will have experience dealing with all types of situations; everything from mortgages for new build properties and the self-employed, to expat buyers and limited companies.

An expert broker, such as HCM, knows the common pitfalls that people face and can predict where lenders will see red flags, and can therefore be prepared with all of the necessary paperwork to avoid the application being delayed or falling through completely. Moreover, a mortgage broker can avoid declaring something that would immediately cause a lender to reject the application. For example, if a prospective buyer told their mortgage broker, “I’m thinking of quitting my job and trying something new altogether,” the broker can explain the consequences of such an action and test this idea with them in more detail. If instead the client went direct and said this fact to an underwriter, even if they’re only ‘thinking about it”, it could spell the end for their mortgage application!

Speaking the same language as lenders

Not only do mortgage brokers have extensive experience in the industry, but they also have positive relationships with lenders and underwriters. This not only allows brokers goodwill when it comes to securing mortgage deals, but it means that they’re aware of how each lender operates, their specific criteria and their product design. Essentially, they will understand which lender is the best option for the applicant, depending on their unique situation. For example, if somebody is hoping to purchase a property through a limited company, a mortgage broker knows which lenders to outright avoid, and which will accept the application. Such information often isn’t readily available or promoted on lenders’ websites, and so having a broker can fast-track proceedings.

It’s also common that people who already own property assume that they understand how mortgages work, but we can’t underestimate how different the holiday letting market is. With this in mind, it’s evident that having a holiday let mortgage broker who can speak the same language as lenders is hugely beneficial. Terms such as ‘rateable value’, ‘interest cover ratio’ and ‘loan to value’ might be recognised, but it’s unlikely that the average buyer would understand the minutiae when in conversation with a lender – at least, without some questions and Googling! Meanwhile phrases such as ‘multi-unit’, ‘mixed-use’ and ‘SPV’ are unique to holiday letting and are therefore less likely to be understood by laymen.

How much does a holiday let mortgage broker such as HCM cost?

Working with a mortgage broker does incur fees which should be factored into the cost of purchasing a property. Regarding HCM’s fees, it’s not easy to draw a comparison between ourselves and other brokers, as we are a focused holiday let mortgage specialist. Some alternative brokers do work with holiday let mortgages on the side (alongside their mainstream residential and buy-to-let business), but we focus entirely on this specialism, and, as a result, we are the most effective in getting results for our clients.

As we’ve discussed, holiday let mortgage underwriting is a manual process which requires the personalised approach of people and not just machines. We are confident in stating that most other brokers just don’t have the knowledge, relationships or understanding of holiday letting that we do, and any mistakes made, especially late in the game, can jeopardise the whole transaction. The application process is far from straightforward and requires a lot of work on our side to present client information correctly and to debate with lenders and underwriters when necessary. In our experience, it’s important to handle any issues quickly and efficiently in order to prevent the application from falling through.

Our fees cover our sophisticated level of casework and are therefore higher; we don’t make any more profit than other mortgage brokers, but we do give each application the time it needs to be as successful as in can be. You don’t have to take our word for it – just have a read of our Google reviews and see how often people mention HCM’s value for money, or indeed I am sure we could arrange a call with an existing client to show, straight from the horse’s mouth, how our services have been more than worth their value.

For more information about how HCM can help you with your holiday let mortgage, contact us.