This information should not be interpreted as financial, tax or legal advice. Mortgage and loan rates are subject to change.
Categories: Case study | limited company | holiday lets | portfolio landlords
Summary of the case
- Purchase of a large period property for holiday letting
- Client had no holiday let experience
- Client was a portfolio buy to let landlord
- Investment was via limited company
What we achieved for the client
- Identified a lender who accepted first time holiday let borrowing
- Overcame minor adverse credit issue (a default on a communications bill)
- Secured loan to value of 75% for the full borrowing required
- Found a lender who accepted non-standard property construction
The challenges of the case
An existing client who had, to date, built a portfolio using standard buy to let mortgages, approached our team to investigate a new investment path.
The properties the client had invested in to date, were quite different to the prospective property they were looking to invest in, which they wanted to rent out using a holiday let mortgage.
Where the clients’ buy to let investments were modest properties in terms of their value, the premises they wanted to buy to use as a holiday let was a large, period, timber-framed cottage with a swimming pool in the grounds.
The value of the property was in excess of £800,000 and the client was looking to borrow 75% of the value. This would be the client’s first holiday let mortgage.
How do you qualify for a holiday let mortgage?
Holiday let mortgages are a sub-set of buy to let mortgages. With a buy to let mortgage you can apply as a first time buyer and a first time landlord with some lenders.
A holiday let is a more complex proposition. For this reason, lenders will want to see some experience in owning property, but you can demonstrate that, if you are an “owner-occupier”, i.e. you own your own home, (with or without a mortgage).
So, whilst you can’t secure a holiday let mortgage as a first time buyer, you can secure one as a first time landlord. We can help you by identifying which holiday let lenders welcome applications from first time landlords, if you are one.
In the case of this client, there was plenty of experience in letting property, but the holiday let aspect was new.
There are other criteria you will need to satisfy, in order to secure a holiday let mortgage, as with any mortgage. But, being a first time landlord will not, in isolation, hold you back.
Is the construction of a property a factor when investing?
Yes, construction is an important factor when investing in property. Each lender will have criteria that determines the type of property construction they will accept.
Some lenders will be looking for ‘standard’ construction types, i.e. brick walls and a tiled roof.
The security property in this case was a period cottage, built in the 17th century and it had a timber frame. As such, when we conducted our checks with lenders, this had to be investigated.
When you are discussing a property you want to invest in, make sure you know and can describe to your mortgage advisor what it is built from and what sort of structure it has.
All sorts of things, that you may not anticipate, can impact the decision to lend (for example, a flat roof on a house, desk access to a flat, shared entry to a property).
Securing a holiday let mortgage with adverse credit
The decision to offer a mortgage to someone is, for the lender, based on the risk of the loan being paid back by the borrower.
Some lenders actively want to help applicants who have faced challenges with their credit profile. Others have strict rules around credit. You could be turned away for something you would not imagine is classed as adverse credit.
The client in this case had inadvertently overlooked a communications bill, because they had temporarily taken on a device which they believed was for a one month fixed period, but was in fact charged on a rolling monthly basis. The bill was overlooked and unpaid as a result.
Non-payment of bills can show on your credit profile. Mortgage lenders conduct a credit search as a standard part of their due diligence checks. They may turn away clients if a bill is currently outstanding, or has recently been through a period where payments were not being made.
It is easy, with the fast pace of life, to overlook ‘life admin’, but when it comes to borrowing money it becomes very important.
If you are unsure of your position, you can use online credit reporting service to check your current credit profile. Some are free (e.g. Clearscore), others are paid for (e.g. Equifax, Experian).
Investing in a holiday let property via a limited company
Investing in holiday let property via a limited company is possible with a number of lenders, but there are two factors that make it a more complex area of lending. 1) That the property is a holiday let 2) that you are investing through a company, rather than in personal name(s).
That being said, as a specialist buy to let mortgage broker, identifying lenders who offer limited company borrowing is commonplace for us. Since the changes in tax rules, which made it more favourable for some people to invest in buy to let via a limited company, more lenders have begun offering this type of mortgage.
Holiday let mortgages have also become more prolific over time, and the Covid-19 pandemic fuelled this, when so many people sought to holiday in the UK, rather than abroad.
Your mortgage advisor cannot give you financial or tax advice (whether or not to invest, what the tax implications for you are). This should always be sought from a qualified financial advisor or a tax advisor as appropriate.
However, your mortgage advisor can explain the difference between limited company and personal name mortgage products. Typically, limited company rates are a little higher. Based on the property you are looking to invest in and your wider circumstances, your mortgage advisor can investigate the rates and costs based on each investment route.
Conclusion
We were able to meet all of the client’s requirements, in this case, allowing them to diversify their portfolio and secure a completely different type of rental property.
Diversification is often an essential business tactic, as trends evolve and your target audience or the industry you operate within changes.
If you are considering investing in a holiday let property, whether as your first experience as a landlord, or to add to an existing portfolio (whether that’s one or two other properties, or many), talk to the team today or send in your details for a callback.
