A Holiday Let mortgage can be set up by the borrower on either a repayment of capital and interest or interest only basis.
Firstly, you need to decide, are you looking for a holiday home mortgage where you will predominantly use the property for yourself and close family and friends? Is it a Buy to Let you want where your occupiers will live in the property with an assured shorthold tenancy? Or are you buying the property to let as a holiday let with occasional use by you and your family?
As mortgage brokers we can help you understand the differences above. Our initial discussions with you will ensure your mortgage application is submitted correctly and that the mortgage lender knows exactly what your borrowing intentions are. Failure to get this right could result in a mortgage application being declined. We actively use mortgage calculators and constantly check lender criteria to ensure the correct deal is obtained.
Understanding Your Situation
The mortgage lender will want to know about the borrower’s personal income and current liabilities. A Holiday Let mortgage application viability will be worked out on an interest only basis. The lender will want to know amount requested, purchase price of property and expected holiday rental income to be received over a given period, normally 30 weeks. At fact finding stage your mortgage broker will assess the viability of your request and check it fits the mortgage lenders criteria.
What is an interest-only mortgage?
An interest only mortgage will not repay a mortgage. It will simply pay the interest owed to the lender each month. Therefore repayment of the loan will have to be by selling the property eventually or clearing the loan by another means such as use of savings or selling another property such as a buy to let you may have owned to raise the necessary funds to clear the holiday let mortgage.
However, you may have enough personal income and excess holiday let rental income to repay the mortgage over a set term on a repayment basis. The payments will reduce the capital and interest owed on a month by month basis. This will ensure that when the term expires if all the payments have been made to the mortgage lender you will own the property outright and the lenders charge over the property will be removed.
The holiday let mortgage market is a specialised area of lending and we suggest enquirers engage with holiday let and holiday home mortgage specialists.
The interest rate on your holiday let mortgage will normally be set as a variable rate which may include some form of initial discount, where mortgage repayments will rise or fall according to the interest rate movement or it will be a fixed rate where the interest rate remains static over a given number of years.
Your loan may be one that’s tracks the Bank of England base rate. You should seek advice about what is the best holiday let mortgage for you from a registered mortgage adviser. Details of all authorised mortgage brokers are held in the financial services register.
How Do I Arrange A Holiday Let Mortgage?
The following process is advised if you wish to purchase a holiday let or holiday home with a mortgage. Find a suitable mortgage broker who can give you advice about holiday homes. Make an appointment and discuss your needs. Please ensure you understand their charges and their process.
A full fact find will normally be taken and suitability assessed. You will now be able to look for your holiday let or holiday home. You should enquire about its rental potential. When you have chosen a potential property to buy your adviser can then discuss in detail the best type of mortgage for you and show you suitable mortgage illustrations which will clearly lay out costs and terms.
When looking for the right property to buy we suggest you seek the expertise of a holiday letting agent if you are buying to holiday let. View this transaction as more of a commercial business venture than if you are looking to buy a holiday home which after all is predominantly for your use and therefore should tick all your property choice boxes.
A good holiday let home is one that rents well for a large part of the year and attracts excellent reviews. For example, you may require absolute seclusion and quiet for your own home, but will most of your customers want this? The chances are they will want to be near activity, the beach, restaurants etc.
When all parties are satisfied the mortgage broker will then apply to the lender with the required paperwork. This will normally include customer income documentation, details of the property rental forecasts and personal bank statements from yourself. The application will be assessed, and the mortgage lender will seek a valuation of the property and any other information it may require.
Repayments on your holiday let or holiday home mortgage must always be made according to the terms and conditions laid out in a mortgage offer and failure to make payments correctly and on time could result in your home being repossessed.