Navigating the Labyrinth: Securing a Mortgage for a Unique Holiday Let Property in the Lake District
The Intricacies of the Deal
When it comes to property investment, there are often more layers to consider than meet the eye. Take for instance, a portfolio landlord, well-versed in the nuances of the property market, looking to diversify his investments by adding a holiday let in the scenic Lake District to his portfolio. The details of the transaction were complex:
- Property Value: £350,000
- Mortgage Amount Needed: £262,500
- Projected Property Income: £24,000 per annum
- Deal Secured: At a rate of 7.24% with a 2% arrangement fee
The Problem at Hand
Our client owns more than 15 properties and derives all of his income from these investments. Traditional lenders, unfortunately, shy away from such cases, putting our client in a bind. Not only did he have the specific challenge of needing to secure a mortgage for a substantial amount of £262,500, but he also faced the additional constraint that the rental income from a standard 6-month tenancy agreement wouldn’t suffice to cover it. Moreover, the property of interest is located above a commercial outlet that serves hot food, an element that further complicates the lending process due to associated risks like fire.
Why Holiday Let Lenders Are a Tricky option
Holiday let lenders have their own set of stringent rules that further constrained our client’s options. Most of these lenders generally prefer to lend to those who own three or fewer properties. Additionally, the majority of them are risk-averse to properties adjacent to commercial outlets, especially those serving hot food, owing to concerns over fire hazards. Furthermore, these lenders usually require proof of earned income and often calculate the lending amount based on a long-term tenancy, rather than the potentially more lucrative but less stable income generated through a short-term holiday let. Often establishing the longer term letting income can be difficult as the property might not have a history in this industry. In this case its wise to consult a local holiday let agent and get an estimate from them which the lender can use.
The Solution: Navigating Constraints and Risks
So how does one navigate this maze of financial intricacies? The first step is to identify lenders who are willing to bend their traditional rules and guidelines. After extensive market research, we were able to secure a deal with a 7.24% interest rate and a 2% arrangement fee. This particular lender was willing to overlook the high number of properties in our client’s portfolio, as well as the fact that all his income comes from these investments. Whilst the rate seems high, the income from such a property is easily 3 times that of a standard BTL, and so yields are far greater.
The property location really matters here and so by consulting with the lender early and showing them the potential we can increase the likelihood of the application being accepted.
Specialized insurers also offered coverage for properties adjacent to food outlets, reducing the risk factor that deters most lenders. Finally, a customized lending solution was drafted that accounted for both long-term and short-term holiday let income projections, creating a viable income-to-loan value that satisfied both parties.
Conclusion: Flexibility and Ingenuity Win the Day
Securing a mortgage for a holiday let property in the Lake District when owning an extensive property portfolio is no small feat, especially when the property is above a hot food outlet. However, with the right expertise and an agile approach, it’s possible to navigate even the most complex of financial landscapes. By meticulously understanding lender constraints and creatively managing risk, our client was able to secure a mortgage deal that met his unique needs.