The holiday let mortgage market has matured a great deal in the last few years. Short term lets have been increasingly popular, and increasingly lucrative.
With a higher rental income potential and more favourable tax treatment, short-term holiday lets are now competing with buy to lets when a property investor is assessing their portfolio.
While it is familiar ground to search out the right mortgage when you purchase a property of this type, some owners have not yet needed to consider a remortgage for their holiday let.
Let’s take a look at the options.
What is a holiday let?
A holiday let is a fully furnished residential property (house or flat) that is let out for short durations only. This could be for a few days or a few weeks at a time, the typical timeframe for a holiday stay.
Mortgages for these properties need the lender’s permission for holiday letting activities. A holiday let mortgage is a special mortgage where the lender agrees and expects that the property will be let to holiday makers, throughout the year.
Why would you need a holiday let remortgage?
Most people choose to remortgage to gain a better or cheaper interest rate but there’s quite a few more reasons…
SWITCH TO A FIXED RATE – If your interest rate has been variable, such as a tracker rate, then you may now want to change to a fixed interest rate to be certain of the monthly repayments for a while.
BORROW MORE MONEY – A remortgage is a popular time to borrow some more money and take advantage of the increased amount of equity in the property.
CHANGE MORTGAGE TERM – As you are applying for a new mortgage, some borrowers will choose to change the mortgage term, perhaps making this a little longer to reduce the repayments.
BUY OUT A PREVIOUS PARTNER – If you originally purchased the property with someone else, a transfer of equity is needed to remove them. This is a legal process as it affects both the mortgage and the property title/deeds. Where there is a mortgage this also has to be changed in to the correct names.
CHANGE PROPERTY USAGE – Your mortgage has to ‘fit’ how you are using the property. For example, if you were letting the property to a family for the long term you would need a buy to let mortgage. Should you now wish to change this property into a holiday let you will need to remortgage over to a holiday let approved lender.
Eligibility
Loan to value (LTV): Typically 75% maximum
Minimum income: £25,000pa of provable earned income
Borrowers: Single, joint, partnerships, trusts, limited companies, SPV companies
Expats: Yes, we have solutions for expats
The size of the mortgage available will be determined by your historical rental income, with a stress test of 125%-145%.
The process of remortgaging
When you remortgage any property the process is generally much simpler than when you bought it. Mainly because there is no property chain, and although a solicitor is needed, the legal work is not as involved.
The first step is to consult with a mortgage broker who is experienced with holiday let finance.
They will then be able to source a competitive deal that suits your circumstances. When you apply for a remortgage many lenders will allow you to use their solicitor, for a reduced fee or occasionally free of charge. This helps to make the process less complicated.
When the new mortgage is ready (mortgage offer stage) it will be used to pay off and replace the current mortgage.
If you applied for a higher mortgage, to raise some capital, any excess funds will be sent to you by the solicitor.
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
Remortgage without a current mortgage
Properties which are owned without finance are called unencumbered.
If you wish to borrow against this property, perhaps to fund property purchases or repairs, you will need to apply for a capital raising remortgage.
Remortgage & stay with your lender
This is known as a product transfer or a remortgage with the same lender.
A product transfer happens when your initial interest rate product is about to end. Your lender will then inform you of some alternative products to keep you as a customer.
These are super quick to do, and your broker can handle all of the paperwork.
Early Repayment Charges (ERC)
When making any changes to your mortgage, including paying it off or replacing it, you need to check whether any penalty fees apply.
These generally relate to the interest rate product that you have; fixed rate, tracker rate etc.
If you repay, in full or part, the mortgage during the product term then the lender will impose an early repayment charge or ERC. Your mortgage broker will ask about this and will look to tie in any new arrangement with the end of the ERC period.
It is possible to change your mortgage at any time, regardless of the ERC consequences. You will need to be confident that this is financially worthwhile as ERC costs can run into thousands of pounds.
What about a limited company remortgage?
The way we are purchasing second properties and investment properties is changing.
Many people are considering buying property through a limited company structure which can provide a number of financial benefits.
Remortgage options are available but they will be restricted to those lenders that are happy with the SPV Limited Company setup. Fortunately, there are many lenders in this position so the choice is good.
Are day one remortgages available?
Yes, as remortgage experts, brokers will be able to assist you if you have only recently acquired the property.
The normal solution would be to find a lender that accepts a day one holiday let remortgage application.
Do I need a mortgage broker?
Hmm, I’m tempted to say yes, absolutely, it’s the law!!
But, you don’t have to use a mortgage broker, and some lenders are happy dealing with a borrower direct.
However, holiday let mortgages are not always straightforward and there are a lot more lenders available if you use a FCA Registered holiday let mortgage broker.
Plus they will do most of the work for you. 🙂
NEED A MORTGAGE EXPERT? Just give us a call on 0330 030 5050 and we will match you to a holiday let mortgage adviser.
FAQ
Frequently Asked Questions
Are holiday lets regulated?
No. A holiday let property is an investment property and unregulated.
How much deposit is needed?
For a remortgage you will need to have at least 25% equity available.
Can I live in my holiday let?
No, but you and your family can use it for holidays.
Do I need an existing mortgage to be able to remortgage?
A remortgage is available even if you own the property outright.
How long does a holiday let mortgage take?
You should allow 6-8 weeks for the new mortgage to complete.
Can I remortgage by myself?
You are able to approach some lenders direct but many prefer to deal with a mortgage broker.
