If you’re planning to buy a holiday let, it’s likely that you’ll already have an idea of what you want, from the dream location to the type of property – a cosy cottage in the Cotswolds, beachfront home in Cornwall, or modern apartment in London, for example.
However, it’s important to understand that when it comes to lending for holiday lets, mortgage providers will be looking at different factors to buyers, and some of their requirements might trip you up!
From location to looks, in this article we’ll consider the difference between what the two parties are looking for, and what not to buy, to give yourself the best chance of securing a mortgage.
What do buyers look for?
Finding and purchasing your perfect holiday let involves many big decisions and will be affected by the fundamental question: does it have the necessary qualities to be successful? When considering a holiday let’s potential, there are a number of factors that people will generally deem most important, including:
Arguably the biggest and most important decision when you’re planning to purchase a holiday let, is location. It could be that you want to set up close to where you live or alternatively, somewhere that you’d like to holiday, so that you can utilise the home yourself. Check out our guide to holiday let locations, here.
Characterful cottage, country cabin or sleek apartment? Depending on personal preferences, a property’s appearance and size will undoubtedly impact your decision whether or not to purchase it. If you’re looking for a quaint family beach home, for example, you’re not going to settle for a modern, one-bedroom house on the high street.
The absence of convenient, free parking can be a problem for holiday makers, who won’t want to pay hefty parking fees or face a long walk from their car to the property. As such, it’s common to seek out a holiday home that has its own driveway or easy street parking.
Number of bedrooms
A larger property can generate higher rental prices and will appeal to a wider market because it can accommodate different groups of guests, making it desirable to many buyers. On the other hand, you may prefer a smaller home which requires less general maintenance.
Ease of access will likely be at the forefront of buyers’ minds; it’s not a good idea to buy a holiday home that’s too remote and difficult to travel to. You don’t want your guests facing stressful journeys and potential isolation if there’s bad weather, all because your property is too far off the beaten track.
What do holiday let mortgage providers look for?
While buyers might be swayed by a holiday home’s interior décor or its location in a bustling village in the Lake District, lenders will be examining different criteria when considering a mortgage application. Their primary concern will be whether your potential holiday home is deemed as suitable security to allow for lending. In other words, they will want to satisfy themselves that if you don’t keep up your mortgage payments, they have a charge over an asset that they could, if needed, sell and repay the loan.
It’s important to understand the main factors that they do and, more importantly, don’t want to see. Common attributes include the following:
Proximity to commercial operations
Aside from the location, mortgage providers will examine the holiday let’s actual position within that area. They are seeking to determine if it is too close to operations that might negatively impact the ‘quiet enjoyment’ of the property.
Classic risk areas include properties that are next to, opposite from, or are above/below the following:
- Pubs, especially those that open later and cook hot food (think smells!)
- Retail shops
- Petrol stations
- Busy commercial operations like a delivery centre
- And so on…
Condition of the property
When it comes to lending, mortgage providers want the least possible risk involved. For this reason, they will want proof that the property is – and this is the key – habitable from day one of the mortgage.
This means that it must be in good condition, has connected utilities, has a working kitchen and bathrooms, and you could quite easily satisfy yourself that someone could move into the property quite quickly.
Lenders are normally quite accommodating when it comes to a quick, cosmetic refurbishment prior to letting, like changing the carpets, decorating, and adding new soft furnishings, but if you are planning something much bigger, then things can get a little more difficult.
What a holiday let mortgage provider will absolutely not do, is lend money against a holiday let that needs to be developed or heavily refurbished. This sort of situation is generally better suited to other types of finance, like a bridging loan or development finance.
In almost all cases, mortgage lenders will want to see that the property to be mortgaged and used as a holiday let, is, in fact, a regular residential dwelling.
Many former farm buildings like barns have been converted to homes, but their planning permission is strictly limited to holiday let purposes only – this is known as “occupancy restriction“. These types of property cannot be lived in as a main residential dwelling, and, as such, are not easily mortgageable.
This one can be difficult to fully understand, but almost all holiday let mortgage providers will only lend against homes that are built to a very strict standard. They call this ‘standard construction’ and in short, this means it is built from brick/stone with a stone/tiled roof. Think of a classic image of a home.
Certain areas of the country suffer from various historical issues when it comes to property construction. Cornwall, for example, has many old cottages that were built with Mundic concrete which is susceptible to decay over the years. Others are built with thin, ‘single leaf’ walls which don’t meet the strength or thermal standard required, and this type of property will struggle to get a holiday let mortgage.
Oh, and if you fancy buying a timber lodge on a holiday park, you might have to find the cash from somewhere else, as most lenders will not touch these structures.
Freehold or leasehold
Depending on the length of the lease, mortgage providers may not lend on leasehold properties. In order to lend, they will want the lease to run for a substantial period of time beyond the end of your mortgage. This is to ensure that the value of the property will not be affected; as time goes on and the lease approaches its end, the value of the property drops.
Most holiday let mortgage lenders will not lend against pure freehold flats.
Properties with significant shared services like a communal pool, gym or concierge desk can attract very high annual service charges. Most holiday let lenders steer clear of such properties as they worry that in an emergency, they might be harder to sell.
Avoid the common mistakes: talk to an expert
When you’re searching for the holiday home of your dreams, it’s only too easy to go with your heart and not your head. For this reason, and due to lack of experience with holiday let mortgages, it’s easy for buyers to encounter potential difficulties when trying to secure a mortgage.
If you’re planning to buy a holiday home, we’d highly recommend that you speak to an expert first – and you don’t need to look any further!
Here at HCM, we know what providers are looking for, understand their key lending criteria, and will recognise potential red flags in your mortgage application. Get in touch to find out how we can help you, or create an account and request your free, initial assessment, here.
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. Please always consult your accountant or solicitor for all financial, taxation or legal matters. Your home may be repossessed if you do not keep up repayments on your mortgage. Pure holiday let, buy to let and commercial mortgages are not regulated by the FCA.