How To Finance a Holiday Let Purchase

holiday let mortgageHow to finance a holiday let purchase

The UK short term letting sector is growing. As pressure mounts on traditional property investments landlords are looking at other ways of generating income from their portfolio.

If you read the media you may think that everything is against the property investor, that tax rises, stamp duty and tapering of interest against profits is driving the landlord out of business. The fact is that there is other data out there which reads very differently and explains why holiday lets are an increasing share of the market:

  • The weak pound is expected to support continued growth in the UK tourism industry
  • The weak pound makes the United Kingdom a cheap destination for foreign travellers
  • Low consumer confidence is expected to weigh on accommodation spending by UK residents

When you look at these facts you can start to see why holiday lets are becoming of greater interest to property investors.

Financing holiday lets

With the growth in holiday lets and the expansion of Airbnb (there are over 110k UK properties on Airbnb) there are going to be a number of mortgage borrowers who have standard buy to let mortgages and be in breach of their mortgage conditions. I don’t condone breaching your mortgage however it’s often not until the mortgage comes due for renewal that the borrower realises they have been in breach and it’s then that remortgaging becomes difficult.

borrowing for holiday letsThe challenge standard buy to let lenders have with holiday lets is twofold. It is about regulation and risk. The changes to buy to let regulation means that lenders have to demonstrate affordability criteria have been met, this criteria is driven by regulation and based on mortgage costs being exceeded by rental income at a set percentage. Holiday lets don’t have a regular monthly income which makes things more difficult to prove. As for risk, if the lender is doing enough business lending for what they know then why risk doing something different?

What the growth in holiday lets means is that rather than see traditional lenders change, niche or specialist lenders are gaining market share.

The big challenge with holiday lets is in showing income. To get the best deal when borrowing it is important to try to understand how the lender measures your letting income.

This is a good way to do things. Take your income across the three main season pricing then average it out. For example;

Low season weekly rate £250
Mid-season weekly rate £575
High season weekly rate £825
Average = £550 x 30 weeks = £16,500
In general you can’t use a whole year income. The lender will sensitise your property income and apply a level of conservatism. You can’t rally against lender criteria, successful applications come from understanding why the lender has their criteria and how you show your holiday let income properly. It is part of what we do.

There are good mortgage lenders out there for holiday let purchases (or remortgages) they are just more niche and not mass market lenders. If you want to know your options then get in touch.

By Dave Farmer

Leave a Reply