If you are looking to purchase a holiday let property it’s important to consider the financial side first. The basic idea will be for the property to generate an income over and above the annual running costs.
But before that you need to buy the property, and this means getting a mortgage.
When you are looking to buy a property to rent out you will need a bigger deposit than with a traditional mortgage.
Each lender will have their own lending criteria, but for a holiday let mortgage the minimum deposit will be 25% of the property purchase price.
What is a holiday let mortgage?
A holiday let mortgage will allow you to buy or remortgage a residential property that will then be used for short term letting, or holiday lets.
How you use a property needs to be approved by your lender. So for a property that is your home, a property that is used as a long term buy to let and one which is used as a holiday let, will all need a different type of mortgage.
So if you want to buy a property that it is mainly let out to holidaymakers and airbnb guests then please read on.
How much can you borrow?
We have established that the minimum deposit is 25% and this will enable you to have a 75% loan to value mortgage.
The amount of mortgage you can borrow is determined by the rental income. A local letting agent will be needed to give you the possible rental income over the course of a letting year. The lender then uses this to calculate the maximum mortgage it can offer you.
Occasionally this calculation will mean that it is unwilling to provide a 75% LTV mortgage and may offer only 70% LTV. To continue with the purchase you will need to find the extra 5% deposit cash yourself to make up the difference.
Advantages of using a bigger deposit
If you have the resources to provide a larger cash deposit then this could open up a few doors for you.
While there are a good choice of lenders for people who have a 25% deposit, advantageous terms will be available for those who can put down 40% or more.
A larger deposit from you means the lender carries less risk. They will reward this with improved products and lower interest rates. You will also have a few more lenders to choose from.
If a bigger deposit is a possibility you should discuss this with your adviser at the first meeting. They can then determine how much of an effect it will have for you.
What does loan to value mean?
Loan to value or LTV will be mentioned by every lender and every broker. The LTV is a number written as a percentage. This figure represents how much of a property’s value is taken up by your mortgage.
Here’s a quick example using our 25% deposit example from above.
| £200,000 | Property purchase price |
| £50,000 | Deposit (25%) |
| £150,000 | Mortgage (75%) |
So in this example the borrower has a 25% deposit and the mortgage will be 75% LTV.
Where will your holiday let mortgage deposit come from?
Lenders will be very interested in not only the value of your mortgage deposit, but where it has come from.
Deposits could come from:
- Cash savings
- Investments
- Property sale
- Inheritance
- Remortgage
- Gifted money
You will need to provide formal, written proof regarding any deposit monies. This should be straightforward for savings or investments. For a property sale or inheritance you may need the assistance of your solicitor.
Gifted deposits from very close family (Mum and Dad) are acceptable, providing the gift is non-returnable (without reservation) and lenders do not generally accepts gifts from friends, colleagues or a business.
Your mortgage broker will need to know the origin of your deposit before they can start looking for suitable lenders.
How to get the best holiday let mortgage
DEPOSIT – Have at least 25% cash deposit available but more if you can. Having a larger deposit will lower your monthly repayments and also increase the number of deals you will qualify for.
ADVICE – Get yourself a knowledgeable mortgage broker who is experienced in arranging holiday cottage mortgages. You will need a specialist to gain access to certain lenders and deals as many of these are ‘broker only’ schemes. Expert help will be essential if you are considering a serviced accommodation mortgage, mixed-use property or maybe a multi-unit holiday let.
Respect Mortgages can introduce you to an award winning independent mortgage broker who has highly experienced holiday let mortgage advisers ready to help you. You’ll receive great advice and an extensive choice of lenders and products.
