Many people
dream of owning a little cottage on the coast… or in the woods… or on a
national park.
And renting
it out to visitors so it pays for itself.
If you’re
one of them, you might also be thinking of retiring there.
All this is
possible. Yet when it comes to buying your dream property there are 5 big
mistakes you should avoid if you want it to be a smooth process.
In fact, for
some people, these obstacles might even put them off achieving their goal.
But they
don’t have to.
In this
article, you’ll discover what these mistakes are, and how to overcome them.
Mistake 1: Believing a buy-to-let mortgage will do the job.
A holiday
home you want to rent out means you’re not going to be looking at a residential
mortgage. You might know this. You might also know that buying a second home is
another fork in the road when it comes to borrowing money.
Okay, so
most of us know the basics about different kinds of mortgage.
Such as:
· There’s a difference between variable
and fixed rate mortgages.
· Sometimes there’s a choice between repayment
and interest-only plans.
· And the fact that if you want to buy
a property to rent out — you need a specialist buy-to-let mortgage.
But a
buy-to-let mortgage is not the right fit for a holiday let rental property. Oh
no. Not at all.
In theory it
might feel right. After all, you’re going to rent it out, right? You’ve even
got an idea of how much income you might get. But if you’re going to let it out
on a short-term basis, then you’ll need a holiday let mortgage. It’s special
because:
· You’ll be letting it out for short
amounts of time, sometimes just a weekend.
· You’ll be relying on things like
seasonal changes when it comes to letting it out.
· Therefore, it might be empty for weeks
at a time during the low season…
· You’ve got to pick the area carefully.
Location is all about the visitors. What do they need? A holiday property must
be somewhere people want to stay. If it’s in a beautiful place that’s difficult
to get to, then lenders might refuse your mortgage application…
· You need to think about whether you
could sell it on as a residential property later on. This is something else
that lenders will be looking at.
Don’t make
the mistake of thinking an ordinary buy-to-let mortgage will cover your holiday
let. People who know they need a special type of mortgage to buy that
gorgeous cottage by the sea are ahead of the game…
You’ll need
what’s called (unsurprisingly) a holiday let mortgage. And it’s got a different
kind of checklist, a different set of criteria, when it comes to getting your
hands on it…
Mistake 2: Choosing the
wrong mortgage advisor…
Picking a
mortgage advisor who isn’t a specialist in holiday let properties is an easy
mistake to make.
Sure, they
might be able to do it. But look at it this way. Here at HHH mortgages, we can
help people who come to us for a self-build mortgage. Having said that, the
truth is that it just it isn’t our speciality and we’re no experts in this
field.
We can do it
for you, but honestly, we might not be able to get something as quickly as a
mortgage advisor who does these kinds of things all the time.
As we’ve
said, to get your foot in the door when buying a holiday let property…
there are several boxes you need to tick. Our expert advisors know these
criteria inside and out.
It’s our
thing. We love helping people make their dreams a reality. And we’ve helped
lenders create their criteria for holiday let mortgages… Just saying.
Many people
think that the easiest way to sort out any mortgage is to apply for through their
bank. It might be true in some cases, but not when it comes to holiday let
mortgages. That’s a law of the universe, really. That the easiest way on the
surface ends up being a big waste of time.
That’s
right. Going to your bank first can end up costing you in terms of time and
effort.
Why?
Because most
High Street banks don’t offer the bespoke holiday let mortgage you’re looking
for.
So, if
you’ve found a lovely little terraced house on a cobbled road leading down to a
Cornish quayside with the beach nearby and a whole host of independent coffee
shops just waiting to serve your eager visitors… and chances are you won’t get
what you need through your bank.
And the last
thing you want to do is waste precious time going up blind alleys with the
possibility of missing out on a whole season’s worth of holiday let income.
The answer
is to chat to a mortgage advisor who really knows their onions when it comes to
your needs.
And this
narrows down your options.
So, look
around. Do your research. Find out who does what. And make your choice based on
as much information as can find, safe in the knowledge that holiday let
mortgages are a bit of a niche.
We should know!
Mistake 3: Choosing the
wrong property…
Choosing the
wrong property is also an easy mistake to make.
What do we
mean by choosing the wrong property?
Once again,
this is where you need to do a lot of research before putting in an offer on a
holiday home.
Here are a
few things to consider:
· Local restrictions. Some counties,
towns, or other areas
of outstanding beauty (and/or popularity), will only allow certain kinds of
property to be used as holiday lets.
· ‘Strange’ or non-standard
construction. If the property includes materials that don’t quite come up to
scratch, your mortgage application might fail.
· Solar panels. Solar panels? But
solar panels are good, I hear you cry. They are. But sometimes they’re an issue
when it comes to reselling. If they belong to the property that’s okay, but you
need to find out if that’s the case. If not, once again, you might have a
problem… because if the panels are rented and not owned by whoever owns the property,
this can put off a possible lender.
Other things
that might be simpler to sort out with a residential mortgage, may cause major
problems when it comes to a holiday let property. Here’s a few questions you’ll
need to ask:
· Is access difficult or blocked at
certain times?
· Does it have a septic tank.
· Is it on a holiday park?
· Thatched roofs are gorgeous but also
a potential fire hazard…
· Flooding – or the possibility of –
can cause problems in the long-term.
· Is it ex-council? These properties
often have restrictions on who can buy them.
And other
things such as leasehold covenants, high rise etc.
Free eBook: Your Holiday Let Mortgage Guide
Mistake 4: Not figuring out how much you can borrow.
To find the right mortgage, you’ll have to have some idea how much you can borrow to make it work.
How can you know this in advance?
For one thing, you can try out our holiday let mortgage calculator here…
Once you’ve had a look at that, there are other things you can do as part of your exploration.
If you’re already a homeowner, you’ll probably have gone through a process with a lender when you applied for a residential mortgage. That’s when your income, spending, loans, credit cards, etc. are all considered when a lender is working out how much they’re willing to lend you.
All those are important in the holiday let mortgage world too.
But they’re not the most important aspects.
What numbers matter the most, then? It’s the rental potential of that property.
In other words, what kind of an income you’ll make on your holiday let. That’s what matters most, and those numbers drive through what a lender will let you borrow.
Mistake 5: Failing to prepare.
That’s basically preparing to fail. An old but true saying.
It’s like this. You know that time when you went out for a walk and got lost? We’ve all done it. What if you were in the middle of Dartmoor, surrounded by squishy bogs? And what if the weather changed really fast (which it does on Dartmoor) and it started pouring with rain?
I mean really, really raining.
Then, as your sandals sank into the watery mud, you’d probably start wishing you’d brought along few things. Proper hiking boots. A thermos of hot tea, a snack, a raincoat. And maybe a printed map. Because no phone signal (again, this happens on Dartmoor and many other national parks and wild beaches) equals no GPS.
This has happened to me by the way… except I did, luckily, have walking boots. It took hours to find my way out of the bog (where I feared I’d be sucked into the moor never to be found again). I got back to the car wet, muddy, and bedraggled.
When it comes to mortgages, a lot of people make the mistake of not preparing properly.
Let’s say you’ve found a good advisor, someone who’ll answer all your questions, knows a lot about holiday let mortgages, and is warm and approachable.
And you provide all your documents in readiness for the mortgage application.
And make sure your recent bank statements are nice and tidy.
Makes sense, doesn’t it?
Of course, as with everything else, a good mortgage advisor will help you with this.
They’ll nurture your dreams and make all the practical suggestions needed.
The right holiday let mortgage for you is out there. But you do need to check a few things before you begin.
Avoid the big 5 mistakes by talking to an advisor first.
Find an expert. Someone who knows the lay of the land. Someone who specialises in making holiday let dreams become a reality. Someone who never forgets their thermos… and if you’d like to know more, download our free guide to holiday let mortgages here.
