How To Mortgage a Holiday Let

For mortgage purposes a holiday let is a property that is not your main residence, is not let out on a standard AST and is let for a short period by different occupants across the year.

Holiday lets are an increasingly popular option for property investors, research by Suffolk Building Society showed:

• 17% of people have considered purchasing a holiday let in the last two years
• Those aged under 34 were most likely to have looked into it
• Half of those who had considered buying a holiday let said their decision wasn’t influenced by Covid

The ambition to own a holiday property is gaining in popularity. The challenge many prospective holiday let owners have is in mortgaging the purchase. A large part of this is due to not understanding how and why lenders view holiday lets differently from a standard buy to let.

Successfully Mortgage a Holiday Let

Let’s cover the main issues lenders have, it starts to make sense after that:

• Bookings are taken in advance, this means that it is not as simple for a lender to take possession of the property
• Deposits paid for booking a holiday let become a problem for the lender in event of repossession
• It takes more time and knowledge to run a holiday let
• There are commonly restrictions on what a holiday let can be used for, this reduces the saleability in the event of repossession
• It is much harder to prove what the income of the holiday let is, income is reliant on marketing, servicing and the weather and holiday lets come with running costs and requirements

Bear these factors in mind as lenders have criteria for holiday lets, all of which relate back to these five points. In general, lenders want the following criteria of a borrower:

• Require a landlord to have a mortgage, own their main residential property or have buy to let properties already – in some instances, a combination of all three
• Have age restrictions for first time landlords, even if they are a homeowner already
• Affordability for holiday lets is calculated on the property’s rental potential
• Have to demonstrate a minimum income
• Show third party evidence of rental value in low, mid and high seasons
• Specialist holiday letting insurance will likely be required

When looking at holiday let mortgage lenders it is worth checking:

• Whether the lender will accept properties in holiday parks, caravans or lodges, and those of unusual construction. Sometimes the covenants on these properties can be too restrictive for the lender or commit the lender to onerous costs in the event of possession
• Don’t assume you can list on sites such as Airbnb or Vrbo. Some lenders prohibit using these sites, we mentioned deposits previously and this links back to that point
• Personal use of the property may be restricted. This is due to mortgage regulation and what the primary use of the property is. This matters as it influences how a lender may repossess if they need to
• Some lenders limit how many holiday lets or buy to lets a landlord can own. There is a limit to what is feasible without it becoming a major enterprise or pure commercial venture

Summary

Mortgaging a holiday let is feasible and achievable, it does take more consideration and more thought. Experience is preferred as is a track record in property of some sort but is not always essential.

For more details or to look at your options then get in touch.