How to Qualify for a Holiday Let Mortgage

If you're hoping to buy a holiday let, you might be surprised to know that the mortgage application process might not be as simple as you'd expect.

In this article, we will discuss the key mortgage criteria that you’ll have to meet in order to qualify for a holiday let mortgage:

What is a holiday let mortgage?

A holiday let mortgage is different to a regular residential or buy-to-let mortgage, and the number of lenders who offer mortgages for holiday lets is significantly lower than standard properties.

It is essential that you get the right type of mortgage for your holiday let, as using a residential, second home or buy-to-let mortgage for a furnished holiday let could be a breach of contract with the lender, and that is something you must never do.

Holiday let mortgages are a specialist area of finance with many “hidden” trapdoors, meaning that navigating this space can be very tricky if you don’t know what you are doing!

Personal income

Mortgage lenders will usually specify a minimum personal income (or earned income as it is sometimes called), requirement from a job. The minimum income will vary depending on the lender in question and could be anything from £20,000 to over £40,000 per annum.

The minimum income requirement will also be affected by your status as either a sole or joint applicant. For a sole applicant the minimum income could be £25,000, for example. For joint applicants, the lender might stipulate that one applicant must earn a minimum of £20,000 or there should be a combined joint income of at least £30,000.

If you are employed, then you’ll need to provide the mortgage lender with your last 3 months of payslip figures. If you are self-employed and looking for a holiday let mortgage, or employed by a company that you actually own, then you will need to provide the last two years of accounts and the last two years of “Tax Calculations” from your HMRC Self-Assessments.

Credit history

Lenders are very picky about credit, and for holiday let mortgage applications, they want to see a squeaky-clean record. Before they will lend to allow you to buy a second or third home, they want evidence that you are a solid bet!

They'll want to check that you haven't run up any significant short-term debt, or failed to make finance payments in the past. Even something as simple as a missed mobile phone payment or a forgotten Next catalogue direct debit payment can cause issues.

For these smaller types of credit blips, there may be ways around it by working with a holiday let mortgage expert. But if you have defaulted on an actual mortgage payment in the past few years, then you will likely be seen as a bad credit risk and getting a holiday let mortgage will be difficult.

Holiday let mortgage deposit

To secure a holiday let mortgage, you will need a reasonable deposit; a larger deposit than would be needed with a residential mortgage. Generally speaking, you should expect to pay a minimum deposit of 25%, while interest rates and fees will also tend to be higher than with mainstream mortgages.

Find out more in our blog surrounding holiday let mortgage deposits.

The property

It's vital to holiday let mortgage providers that your property is considered as suitably secure to allow for lending. Fundamentally, lenders want to see that the property in question is a regular, residential property that could be sold on the open market without any problems, in the event of a payment default.

Lenders will also want to confirm that the property lease or deeds don't contain any clauses that might prevent holiday letting as an activity. There might be occupancy restrictions in the area, or the property might be built on a holiday park, for example. Irrespective of location, you will need to meet the criteria for the minimum property value of £50,000.

Most mortgage lenders will also want assurance that the prospective holiday let is of standard construction – wooden lodges, boats or shepherd huts will raise big red flags!

There are further complex property requirements, including things such as:

• The property's proximity to a commercial operation, such as a pub or a restaurant

• Shared access issues with your neighbours and shared utilities, like a joint septic tank

• Flat roofs and flying freehold situations

Rental forecast

You should be confident that your property will work successfully as a holiday let. Lenders will need proof of the estimated gross rental income to ensure that your mortgage repayments can be met by the holiday let income.

To get a realistic estimation, it is essential that you get support from a reputable holiday letting agent such as Sykes, who can provide you with a credible estimation. Our completely free Holiday Rental Income Estimation Letter service is there to help you out.

Mortgage lenders will typically expect you to make a gross rental income from your holiday let that is 145% of the mortgage payments, when calculated at 5.5% interest rates (known as a stress test).

At present, lenders are generally not willing to accept rental figures created by the property owner if they are self-marketing using a platform such as Airbnb or Trip Advisor. Therefore, in order to qualify for a holiday let mortgage, using the services of a professional holiday letting agent, such as Sykes Cottages, is essential.

About B2BFinance

B2BFinance's purpose is to enable you to realise your opportunity of holiday letting by providing a specialised, digital broker service, focused solely on holiday lets, quickly and simply.

Founded by mortgage experts, B2BFinance brings together a broad and deep understanding of the holiday letting industry with professional and authorised mortgage broking, all delivered through an intuitive, easy to use, online platform. With our combination of expertise, skills and technology, B2BFinance presents a unique market offering and we are proud to be the UK’s number one expert in this field.

Get in touch with B2BFinance today by emailing info@b2bfinance.com or by visiting www.holidaycottagemortgages.co.uk

Disclaimer

The information contained in this article was accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time, so please contact our prospective new owner team if you’d like to hear how. Nothing in this article constitutes the giving of financial, tax or legal advice to you; please consult your own professional advisor (accountant, lawyer etc). in this regard. If we have referred within the article to a third-party provider of unregulated holiday let mortgages, this is due to the fact that such mortgages aren’t currently regulated by the FCA. As a helpful reminder, your home may be repossessed if you do not keep up repayments on a mortgage, so again anything you decide to do in this particular area this is one on which you should take your own professional advice on too, as we aren’t providingand can’t provide you with this.