If you are wondering how do you get a holiday let mortgage there are several routes you can go down. You could do some research on the internet and find a few lenders. For those who want to do a DIY job, you might want to look at Leeds Building Society. There are of course others and they all have their own set of lending criteria and hoops to jump through! Some of these lenders have minimum income requirements and others don’t, the key is to find the best lender that is right for you. Read on to find out how we might be able to help.
Before I guide you through some of the benefits of using a mortgage broker with experience of the holiday let mortgage market, the alternative (as you know) is to speak to a lender direct.
To be honest we deal with lenders all the time, day in day out, week in week out, and despite our expertise its still really hard. All I can say is for those of you who want to do it yourself, good luck!
The reality is you can spend a lot of wasted time speaking to lenders and get nowhere. Even if you get a mortgage agreed, how do you know its the best option? How much more could you be paying? How much has it cost you in time and money? Remember you’re looking to start or run a business, and running a business is not just about generating income, but also minimising costs to maximise profitability.
For us its all about relationships. We want to work with clients who appreciate what we do, understand its not easy and want to work with us, to find a solution.
Holiday let mortgage expertise:
If you are looking for a broker in the holiday let sector make sure it is someone who has experience of this. Holiday let mortgages are very different to other types of finance and very different to buy to let. Why not take a look at my blog Holiday Let v Buy to Let.
The crucial difference is criteria, and it is important not to fudge the two. They are very different things with different levels of income and require different types of lending solutions. Independent surveyors who are sent out to value properties will know whether the property is likely to be used for a holiday let instead of a buy to let and it is much better to be upfront and honest.
What is the difference between a holiday let mortgage and a buy to let mortgage?
When it comes to investing in property, there are clear differences like I pointed out in my video. However since the video I am seeing some interesting developments within the property investment world, which I’ll share with you in future videos, so be sure to subscribe to my YouTube channel here http://bit.ly/followbenparry and of course if you have a specific question, be sure to ask.
Getting back on topic, in terms of the mortgage world, there are lots of differences to be aware of when it comes to holiday lets v buy to let mortgages! They tend to fall into these high level elements of lending criteria:
- the property
- the rental yield
- the applicant fitting lending criteria
- How the property is going to be used
Of course before I give you a flavour of the differences, it is important to be aware lending criteria always changes. Broadly speaking a buy to let mortgage is easier as some lenders do not require a minimum income and some times the deposits are less. Of course this is always changing and lending criteria is not a static goal post!
(Update: since this blog was written, the buy to let market has changed significantly and lending rules, particularly for portfolio landlords has got tighter. Suffice to say we are on top of the changes and are helping many buy to let landlords).
Holiday let mortgage criteria:
Minimum income requirements for holiday let mortgages:
For applicants who are looking to get mortgages on holiday lets there is usually a minimum income of anything from £20,000 to £40,000 (some have no minimum income).
If you are self employed it is important you have your accounts up to date and request your SA302's. You’ll also need your latest 3 years accounts. If someone is a director of a Ltd company and technically employed, lenders will treat you as self employed for lending purposes.
For those self employed clients it can be helpful speaking to someone who understands accounts to make sure they are going to be suitable for lending purposes.
Personal situation for holiday let mortgages:
For finance on a holiday let applicants have to be a homeowner (although I know of a few lenders who can be flexible on this) and there may be restrictions on the number of properties the person has in their portfolio.
But again it really comes down to individual lending criteria.
Lenders will always sense check the application to see if it is plausible to prevent fraud and do their due diligence.
Rental calculations for holiday let mortgages:
In terms of the rental yield a holiday let lender will require a letter from a reputable holiday letting company to establish the annual income. This will obviously take into account the high and low seasons. Once the lender knows the holiday rental income, this income will have to pass their thresholds at a set interest rate.
As a guide this might be 125% at a notional 5% interest rate. In other words, does the holiday rental income cover 125% of the monthly costs (at a notional 5% interest rate). If it does, then great. If not and depending how close the figures are, it might be a case of having to put down a larger deposit.
Why the holiday let property is also a vital ingredient for a holiday let mortgage:
Aside from the rental yield the property also has to be deemed suitable for lending.
Again criteria can vary from lender to lender, but as a guide you might come across a farm house which also has a cottage. The intention might be to holiday let both, however some lenders may have an issue with two separate units being on one title and require the title to be split.
How easy or hard this could be, might be a deal breaker.
Of course we know some lenders where this is not an issue, but they tend to be few are far between.
Equally if the property has more than 5 acres this could cause issues with certain lenders. Again with others it might not be.
What deposit do I need for a holiday let mortgage?
In terms of the deposit it is broadly similar but can be anything from 25-30%.
However like I said the rental figure might not stack up and you might have to put down more of a deposit to make the deal work.
A buy to let mortgage in contrast can work on a 15-20% deposit, but again if you can find 25% the rate will be better and there will be stricter criteria for smaller deposits.
Like all these things, the more you put down, the easier it is to get the mortgage and the cheaper it is too!
Your next steps if you want help getting a holiday let mortgage:
If you would like to chat through your options or get a flavour of what you can do, please feel free to get in touch and ask us any questions you have, we are here to help.
Also we do have other holiday let guides, so please feel free to take a look at these too.