Holiday let vs buy to let: FAQs about the property

While the holiday let market remains something of a niche area within property, it’s becoming ever more enticing to property investors who are keen to add holiday lets to their portfolios.

Yet it’s important to recognise that there are some important areas where holiday let mortgages differ from traditional mainstream buy to let, resulting in new considerations for brokers and borrowers alike to bear in mind when looking for such mortgages.

Here are some of the crucial contrasts when it comes to the property being borrowed against with a holiday let mortgage.

Are holiday let mortgages available in all locations?

It doesn’t matter what type of property purchase you’re talking about - location is always an important factor in the mortgage process. However, this is amplified for holiday let cases. After all, the areas a client may wish to purchase in for a holiday let can be significantly different from a traditional buy to let. For example, a regular landlord might prefer to purchase properties which will have year-round appeal, such as those in city centres or in areas with excellent commuting links.

However, holiday let purchases are likely to be more particular at specific points of the year or be a touch more remote, such as apartments overlooking the coast or cottages in the countryside.

Some lenders will have rules covering which areas they will and will not offer holiday let mortgages in, which can impact your client’s chances of obtaining the funds they need for their planned holiday let purchase. For example, some lenders are unwilling to lend against purchases in the Scottish Highlands.

By contrast, at The Cumberland for example, we lend throughout mainland UK, as well as the isles of Anglesey, Arran, Mull, Skye, Lewis, Harris and Wight.

It’s also worth noting that some areas have additional rules in place over short-term letting. For example, in Scotland, a licencing requirement is coming into force for holiday lets later this year.

Will occupancy restrictions impact the holiday let mortgage process?

When a client is purchasing a buy to let property, chances are the property will not be subject to any occupancy restrictions. It is simply a normal home, which is being let out rather than occupied by the owner.

This isn’t always the case with holiday let investments, however. There will be occasions when these restrictions are in place; for example, a property on a holiday complex may only be permitted to be occupied for 11 months of the year. These properties will likely be excellent investment opportunities, given their location and surrounding amenities, but raising the funds to purchase one can be challenging as not all lenders will offer funds against properties subject to such restrictions. We do cater for this at The Cumberland; investors looking to purchase a property subject to holiday let occupancy restrictions can apply for products on our non-standard product range.

What property types can clients borrow against with a holiday let mortgage?

The type of property being purchased or refinanced is a big consideration when it comes to holiday let mortgages.

It’s important for any client looking to invest in a leasehold property to check the terms and conditions of that lease. There are occasions when the lease includes clauses barring the property’s use as a short-term let, requiring that it only be used as a regular residential property.

The number of units will also have a bearing. Some lenders will only offer holiday let mortgages if there is a single unit on the Land Registry title, which is fine if the investor is purchasing a standalone property. At The Cumberland we can lend on properties with multiple letting units on the title including the client’s home (provided they are occupying less than 40% of the overall property). We recommend that brokers get in touch with our Intermediary team directly to discuss a particular property, as over 4 units is likely to be treated as a commercial property which is also something we can cater for.

The surrounding properties can also impact a client’s ability to gain a holiday let mortgage. In some cases, lenders will be unwilling to lend against properties situated above a commercial property, such as an apartment above a shop. At The Cumberland it is possible for us to consider lending on such properties provided we are comfortable with the type of business operated from the ground floor. Properties above a commercial premises qualify for our non-standard range.

Can clients raise funds for renovation or debt consolidation with a holiday let mortgage?

It’s important for brokers to understand that holiday let mortgages can prove useful for purposes other than simply purchasing a holiday let property. Indeed, they can be an excellent option when the client needs to raise funds for other reasons.

For example, it’s possible on our standard range to use some or all the funds raised against a holiday let property for the purchase or renovation of a separate property. If the client needs to consolidate short term debts then we at The Cumberland may be able to consider this if the borrowing requirement is more than £25,000.

A personal approach to holiday let mortgages

When it comes to regular buy to let mortgages, it’s not uncommon for mainstream mortgage lenders to employ something of a ‘tickbox’ approach. They may utilise automatic underwriting systems to enforce rigid rules and criteria; any slight complexity may mean an application is declined.

Things are rather different with holiday let mortgages, particularly at The Cumberland. All our mortgage assessments are conducted manually, meaning our experienced underwriters can understand the intricacies of a case and give a more informed decision.