Do it Yourself, or Go with a Specialist?
As holiday let mortgages are more of a niche topic, it is advisable to work with a professional who has expert understanding of how this market works. By all means, you can go it alone and apply direct to a lender, but beware that there are usually one or two ‘bumps in the road’ and unless you have the knowledge, relationships and experience to handle such issues then you risk derailing the process and losing your opportunity.
For example, a typical hurdle is trying to understand the holiday let income forecast, to work out whether or not you will pass the mortgage lenders’ rental income stress test. By this, we mean that the gross rental income from your holiday home should cover around 125% to 145% of the expected mortgage interest payments, when calculated at 5.5% interest rate.
Key Lending Criteria
Mortgages for holiday lets have different lending criteria to traditional or buy-to-let mortgages, and it is important to understand the criteria you’ll have to meet in order to be successful.
Each lender will have its own set of rules and, here at HCM, we track around 30 different variables across 18 or so lenders to find the right answer. These criteria items will usually include things like:
- Minimum income requirements, which could be anything from £20,000 to £80,000 depending on the number of applicants and loan size.
- A stipulation that all applicants must be over the age of 21.
- Either all applicants, or just the lead applicant (in some cases) already own their own home.
- Applicants must have UK citizenship with at least 3 years’ address history.
- Applicants must have a very good credit history.
- There must be confirmation that the property will not be lived in as a main residence by anyone.
And so on…
To read more about holiday let mortgage lending criteria, visit our detailed article here.
Understanding Lending Limits
If you’re applying for a holiday let mortgage, you should familiarise yourself with lending limits, which are measured by referring to the loan-to-value (LTV) calculation. This is the maximum amount that a mortgage lender will agree to loan you, as a percentage of the property’s value.
When it comes to most holiday let mortgages, the maximum LTV will be around 75%, so you’ll need a minimum deposit of 25%. Most loans also have a minimum value of around £50,000 and maximum values of around £750,000 although some lenders will go as high as £1,000,000+ for ideal clients.
You will also need to consider whether you apply for an interest-only or repayment mortgage. The former can make the monthly payments easier to manage, but you must be certain that you are able to repay the capital at the end of the mortgage term, as the balance will not be reducing over time.
Lastly, when considering your mortgage repayments, look at the lenders’ fixed, variable and discount mortgage rates to work out the best and most affordable option for your circumstances. Each lender will have different options. For example, one lender might offer either five-year fixed or three-year variable; whilst another might only offer discounted rates.
Also, don’t forget to take into account the lenders’ fees, such as valuation, legal and arrangement fees. Over short time periods, like 2 years, these amounts can make a material difference to your choice.
Securing the Right Property
Firstly, you should be confident that your desired property will work successfully as a holiday let. Lenders will need proof of the projected gross rental income to ensure that your mortgage repayments can be met by the holiday let income. To get a realistic estimation, it is essential that you get support from a reputable holiday letting agent, one who can provide you with a credible projection.
What’s more, to get a holiday home mortgage, mortgage lenders must consider your property as suitable security to allow for lending. Lenders will examine the property’s title deeds, to certify that there are no restrictions that might limit its use as a dwelling, as this could impact the value of their security. Lenders will also want to know if the property deeds contain any clauses that might prevent holiday letting as an activity. For example, if there are occupancy restrictions in the area, or if the property is on a holiday park.
Lastly, most mortgage lenders will want assurance that the prospective holiday let is of standard construction – no wooden lodges, boats or shepherd huts, for example!
Other, more complex property requirements include things such as:
- The number of properties on a single title.
- The property’s proximity to a commercial operation such as a pub.
- Shared access issues with your neighbours and possible flying freehold situations.
And so on…
Finding the Right Lender for You
Since many holiday let lenders don’t widely advertise their mortgage products, trying to find a complete list of lenders can be a very difficult task for an individual.
Therefore, we recommend that you work with a specialist mortgage broker, one with deep understanding of the holiday let market, who has excellent knowledge of the best deals available and can reliably source the right deal to suit your individual needs. Even better, the right broker will do the hard work for you, keeping your stress levels to a minimum.
This is where Holiday Cottage Mortgages comes in. With our vast knowledge of holiday letting and holiday let mortgages, together with our unique online application system, we are dedicated to finding the best lender for you, quickly.
When to Apply?
Before you apply for your mortgage, it is advisable to make some initial enquiries and do some research into the housing market. What’s more, as lenders will require a good credit score, it is a good idea to check yours before you get the mortgage application process rolling. This can be done online, via a number of websites including www.noddle.co.uk.
If you are about to make an offer or have made an offer on a property, you will need to start the mortgage application process as soon as possible, in order to keep ahead of the process. Other buyers with a pre-approved mortgage might want to make a better offer!
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How Long Does It Take?
It is difficult to give an accurate timeline as the mortgage application process can be affected by a number of factors.
However, if things progress well and there are no issues, then the process from application to mortgage offer issued can be as low as two or three weeks, assuming all documentation is accurate and the valuation comes back as expected.
How Do I Apply?
If you are ready to begin your holiday let mortgage application process with Holiday Cottage Mortgages, here’s what to do:
Holiday Let Mortgages. Done.
Holiday Cottage Mortgages Limited is an Appointed Representative of Julian Harris Mortgages Limited, Julian Harris House, Musgrove, Ashford, Kent, TN23 7UN, which is authorised and regulated by the Financial Conduct Authority (FCA). Julian Harris Mortgages Limited’s FCA Register number is 304155. The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at www.financial-ombudsman.org.uk
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. Non-standard applications may attract a broker fee of up to £995.