Are you thinking about investing in a holiday let property? Or maybe you’re looking to expand your existing portfolio. Our team of holiday let lending experts at The Cumberland run us through the key factors you need to consider when seeking and applying for a holiday let mortgage, including the short-term let licensing scheme.
If you are purchasing a holiday let as an investment, you will need a specialist holiday let mortgage. Not all lenders offer this type of mortgage, so the first step will be doing your research and finding those who do. Then it’s time to consider your answers to some key questions…
Lending criteria varies between lenders, so the first step will be identifying what you need from your mortgage and finding out what the lenders can offer.
Think about the following:
Some lenders only offer mortgages within England and Wales, for example, so if you’re purchasing in Scotland, that’s something you will need to check. At The Cumberland we offer mortgages throughout England, Wales and Scotland, and selected UK islands too.
Typically, for a holiday let mortgage, 75% will be the maximum LTV. Some lenders have a lower maximum LTV, so if you’re working with a 25% deposit, check this criteria early on (usually available on their website).
To qualify for a holiday let mortgage, your property will need to meet the Furnished Holiday Letting criteria set out by HMRC. This set of guidelines covers various criteria that you need to meet, in order to enjoy the tax benefits that come with a holiday let property.
For example, your property must be available for letting as furnished holiday accommodation for at least 210 days in the year – any time that you or family and friends stay in the property (unless
they’re full paying guests) does not count as part of this 210 days.
From 1 October 2023 you must have a licence before you offer short-term lets in Scotland. This includes holiday cottages, unlicenced B&Bs, guest houses, rooms within a home and unconventional accommodation such as pods and yurts.
In addition to the mandatory licensing scheme for short-term letting accommodation, in some areas of Scotland planning permission is also now required for this type of accommodation. You may wish to contact your local planning office to find out whether this might apply to you.
You can find out more about the change on the Scottish Government website: https://shorttermlets.campaign.gov.scot/
Lenders will have a minimum and maximum loan size, so once you’ve established roughly how much you’ll want to borrow, double check that it fits in with the parameters offered by a range of lenders. Unless it’s a small or very large amount, chances are you’ll have no problems here.
Your lender may ask that there is a certain amount of time left on the lease, both at the start of the mortgage and at maturity, so this is important to check when you’re viewing properties.
As part of the application process, lenders will assess affordability. To help them make an informed
decision, they’ll be looking for information such as the details of present income and expenditure for the property.
For example, at The Cumberland, if you already operate the property as an established holiday let, existing trading figures in the form of certified accounts, a letter from the holiday letting agent confirming gross annual income for the last 2 years, or the last two years’ SA302/HMRC Tax Calculation Summary will all be accepted.
If you’re purchasing a property that hasn’t been a holiday let before, we would ask for a projection from an experienced holiday letting agent. Even if the property you wish to purchase has previously been operated as a holiday let by the current owner, it is still preferable to obtain a projection from an experienced holiday letting agent, given that you may intend to operate the property differently than the current owner has been doing.
Not all lenders will accept projected figures though, so look out for this when doing your research.
At The Cumberland, to help us assess each application we’ll also ask for:
Will you buy in your personal name or through a limited company? Company structures have different tax advantages, so it’s worth assessing your options. At The Cumberland we lend to
individuals, partnerships and limited companies as well as trading companies and LLPs. Be aware that not all lenders accept limited companies.
Fixed versus variable rate
Consider whether a fixed rate or variable rate mortgage would suit you better. There is no universal ‘best’ option here – it really depends on your personal circumstances and the degree to which you require certainty with your mortgage payments.
The property will be valued for mortgage purposes and whether you pay for this will vary between lenders – however, this valuation will be addressed to the lender, and you will be provided with a copy of the report. The valuation is a crucial part of the process as it covers some important elements:
Once the valuation has been received and the property is assessed as satisfactory for lending purposes, a mortgage offer will be produced and sent to you and your solicitor.
Your solicitor will carry out searches against the property and liaise with the seller’s solicitors regarding the fine detail of the sale contract and the completion date.
When the completion date is given, your solicitor will request the funds from your lender and shortly after you will own your own holiday let property. How exciting!
Once you have established what you’re looking for, it is a good idea to speak to a lender and ask any questions you may have. Often you can do this from the comfort of your own home, via a telephone appointment.
From talking to a lender, you will be able to understand:
Visit The Cumberland website to find out more about our holiday let mortgages.
Guidance Sheets are written by experienced Members of the ASSC and other experts. The information in the ‘Guidance Sheet’ is provided by the ASSC for use by Members in support of their own independent business decisions. It does not constitute advice or instruction for which the ASSC can be held liable in any way whatsoever. All Members and other readers remain responsible for the consequences of any decisions taken whether in the light of information gained from this Guidance Sheet or not.