Applying for a Holiday Let Mortgage

When starting your holiday letting journey, it is difficult to understand exactly what information you need when applying for a holiday let mortgage.

As different regions and counties vary in regards to rules and regulations, it is hard to understand exactly what you need for your home.

Information to give to your holiday let mortgage provider

Before you get started, you need an understanding of how holiday let mortgages work and the things you will need to know before you even consider applying.

Keep in mind the following:

Your deposit

When taking out a mortgage on a holiday property, you need to consider how much you have for your holiday let mortgage deposit. Mortgage providers will typically never lend anything more than 75%, that means you will need a deposit of at least 25% of the property's value.

Home furnishing

If you intend to let out your property, you will need to ensure that your holiday let is fully furnished. This will ensure that your property meets the criteria set by HMRC.

Letting intentions

Once you have your property, what is going to be your main aim of owning it? Are you getting to use it as a second home, or a holiday home to let out to customers?

The answer to this question is important as it will determine what kind of mortgage you will be permitted to.

If you intend to let your property out as a holiday let, you will need to keep the property available for at least 210 days a year.

How much money you want to borrow

Mortgage providers for large property investments, such as holiday properties, will have a maximum allowance on how much they can lend to you.

That means, even if you have the minimum deposit required for the property, you still need to ensure that the provider can lend as much as you are asking.

Our Holiday Rental Income Estimate Letter service could help get you the deal that you are looking for.

Where is the property located?

Consider where the property is located before you apply through a mortgage provider. Some providers will only lend you finances if your property is situated in England and Wales with some specialist providers only lending based on just England, just Wales or just Scotland.

Information you need before applying for a holiday let mortgage

There are a few more things that must be decided before applying for your holiday let mortgage. Think about the following:

Where can you get a holiday let mortgage?

Unlike typical mortgages, a holiday let mortgage is often acquired through a building society as opposed to a traditional bank. This is due to the nature of what the property is going to be used for.

How to find the best holiday let mortgage

With many different brands and companies out there willing to offer you a mortgage, it is hard to find out which provider is the best.

To help ensure you are finding the best match and a successful mortgage application, utilise the help and skills of a mortgage broker. They will help you navigate the world of holiday letting mortgages and even find providers that aren’t typically available to the open market.

Know your alternatives

If you’re looking to get yourself on the holiday property ladder but are worried about holiday let mortgages, you’ll be glad to know that there are alternatives!

Mortgage-free is a costly but effective way of financing your holiday home. By going mortgage-free, you escape the fear of not getting accepted for a mortgage and you will save yourself from having to pay monthly mortgage payments.

If you almost have enough to pay for the property entirely but you’re just not quite there, you could potentially loan the rest. As most banks and societies will loan a maximum of £25,000, this could help you bridge the gap between what you have and what you need to pay off the rest of the property.

Another option is to remortgage your main home to finance a deposit for your holiday home. If you have paid a large portion of your mortgage on your existing properties and they have increased in value, you may be able to use the equity to buy your holiday home without the need of a mortgage!

Tax Implications

As mentioned previously, HMRC have set out a criteria of what it takes for your property to be classed as holiday accommodation.

But did you know that if your property meets this criteria, you can claim capital gains tax relief as well as entrepreneur's relief when you sell the property?

On top of this, profits that you make from letting out your holiday property will count as earnings for pension purposes.

What Properties and Features will Holiday Let Mortgage Lenders Refuse?

Have you got your eyes on a property to holiday let but not quite sure if the mortgage provider will refuse a loan? Don't panic! In the reality of property letting and mortgages, there aren't many factors that will prevent you from obtaining a mortgage on your ideal holiday home.

Although your holiday home dream is in reaching distance, there are still a few requirements you must meet before a mortgage provider will lend to you.

Property Condition

A number of lenders will require the property to be secure and habitable for your guests. This includes having an adequate gas and electric supply to the property, a functional kitchen and bathroom.

The reason behind this is to ensure that there is actually healthy income being driven into your property to pay off your mortgage.

Commercial Business Nearby

Some financial lenders may be a little tentative to provide you with a mortgage if there is too many commercial businesses nearby. This doesn't mean if there is a restaurant nearby that may offer services to the holidaymaker, but instead whether or not your property is situated in extreme close proximity to a commercial business that may affect the guests' experience.

Examples of commercial businesses that may affect your guest's stay include restaurants, bars, pubs, hair salons, retailers or petrol stations. Again, this it to avoid the property losing out on any potential revenue due to not being desirable.

Non-Standard Construction

As is the case with most property mortgages, the manner in that way that property has been constructed plays a huge part in whether or not the property is mortgageable or not.

Most lenders will not provide any financial support for properties that are not built in a traditional manner. A traditional way of building a property is by using brick and/or stone whilst sporting a slate or tiled roof.

This subject matter is entirely subject to opinion in most cases as some lenders will be less picky when it comes to the property material. Such materials as timber and concrete will be subject to opinion of the lender.

Leasehold Properties

Leasehold properties are a major factor of disqualification when it comes to holiday home letting.

Firstly, the value of the property at the end of the lease tends to drop which will mean that the lenders could be losing out on money if the loanee defaults.

On top of this, there are many legal obligations that will prevent a leasehold property to become a holiday property. This is due to the fact that most leasehold properties feature clauses in their contracts that state that the property cannot be used for business purposes. With this in mind, holiday letting and other forms of B&B letting will be considered as a business.