Understanding why a buy-to-let mortgage is different from a holiday let could help you avoid costly mistakes! If you are considering a holiday let investment and need to arrange finance it is important to get the right mortgage. In the same way a holiday let business is very different to a standard buy to let, so are the criteria rules for the mortgages. Read on to find out why getting a buy-to-let mortgage is different from a holiday let one.
What are the mortgage differences between a holiday let and a buy to let?
From a business perspective a holiday let is aiming at a different market and will see fluctuations of income throughout the year. In the summer months rental income can be very profitable, but in the winter months it could drop like a stone. I’ll shortly right a blog on the business differences and things to consider in another blog, so keep an eye out! A holiday let should not be thought of as a buy to let as they are completely different things.
Aside from the differences in the types of properties and their markets, there is also a very different way to fund a purchase of a holiday home compared to a buy to let.
Or if you are fortunate enough to already own a holiday let, how you might want to look at re-financing.
The first thing to be aware of is not all lenders will lend on these types of properties.
You might imagine that a lender who is happy to lend on a buy to let would be happy to do the same with holiday lets, but this couldn’t be further from the truth. In fact the number of lenders for holiday lets is a lot less than the buy to let market. This means in terms of options that are available, rates, fees and lending criteria are very different and there is less competition.
The buy to let market in contrast is a lot bigger and more competitive which for investors means cheaper pricing and better deals. However as the holiday let market grows and more lenders decide to offer Holiday let mortgages, then I’m sure the pricing will come down.
When it comes to choice, there are more options for buy to let mortgages than holiday lets. Holiday let mortgages are few and harder to come by. In fact most buy to let lenders would never consider lending on a holiday let.
How is a holiday let mortgage similar but different to a buy to let?
A holiday let mortgage has similar criteria as a buy to let in terms of assessing the individual and then assessing the rental income. However one of the big differences in criteria for holiday let mortgages is personal income has to be higher than a buy to let.
In terms of assessing the property, lenders sometimes rely on a reference from a reputable holiday letting company to give an indication of the annual income.
In contrast buy to let mortgages rely on the surveyor indicating what the rental figure is.
As lending criteria is always changing I would not want to outline criteria here, as no doubt it could be very different by the time you come to read this blog.
Suffice to say if you are considering a holiday let mortgage, make sure you are a homeowner (although this is not always a requirement), you have a good deposit (at least 25%), and you are able to evidence a reasonable level of personal income.
Holiday let mortgage options with no minimum income requirements!
There are alternative lending sources coming into the market and these are becoming more prevalent as the holiday market grows.
If you have assets then it could be possible to still achieve the dream of a holiday home even if the minimum income thresholds fall short of certain lenders' criteria.
In fact with some lenders, income is not even considered. The key sometimes is the physical asset and the level of deposit. You will likely be looking for at least a 40% deposit and don’t expect it to be necessarily cheap, but there are lenders out there who take a different view.
Not all holiday let mortgage lenders are the same!
In the same way, as lenders have different interest rates that can change, they also have different lending rules and criteria which can also change. It is really important to be aware that they are all very different and the current flavor of the month is often not always the best option in the future.
Things are changing all the time. One lender may say ‘no’ now, but it doesn’t mean there won’t be another lender who says yes. Our advice is to always speak to one of our mortgage advisors who are always up to date with the latest lenders, rates, and criteria.
Importantly a mortgage broker will be able to review criteria before submitting an application to a lender. It is important to not apply to the first lender you come across without proper due diligence and research. Otherwise, you risk applying, getting declined and it affecting your credit score. Not to mention wasting a lot of time and energy!
Why a holiday let mortgage can be a hassle!
Holiday let mortgages are a little more niche compared to buy to let and not every lender will do these. Because of this lack of mainstream lending, the lenders who do work in this space can be very different in terms of their systems and back-office support.
They won’t all be set up to drive efficiency and handle large volumes of applications. What does this mean compared to a standard buy to let mortgage lender? Hassle!
The hassle factor is often not considered when people are looking to apply for a mortgage themselves.
Knowing a lender's current service standards, lending requirements, and turnaround times are something that a good independent mortgage broker will know.
Of course, this is not static and lenders who are doing well one day can drop the ball the next!
I met someone recently who was telling me about the hassle he is currently having with a smaller lender for his development project and how he was still having to jump through hoops 6 months after he had applied (and they still hadn’t agreed on the finance).
Once he knew what we did, he wished he had got in touch as he had no idea of the hassle, effort, and frustration of dealing directly with the lender. But to be fair how could he know? He doesn’t use them on a regular basis and does not have the knowledge and experience of dealing with them.
It's easy for someone to say yes, but the jobs are not done until you get the finance through!
A good mortgage adviser is dealing with lenders all the time and will know the pitfalls and benefits of different lenders and it's just impossible for you to know this.
If you have a question or need specific advice, please get in touch we’ve got the expertise to help.