Holiday Let Mortgage criteria (A guide)
By
HuutiMoney
In this brief blog, we are going to discuss holiday let mortgage criteria.
holiday let mortgage criteria
Holiday let mortgage criteria are very different to those of traditional mortgage and as there are not many mortgage lenders offering holiday let mortgages it is very important to understand the holiday let mortgage criteria and prepare yourself for such a mortgage.
Interest rates on holiday let mortgages tend to be higher than those on residential mortgages.
Each holiday let mortgage lender will have their own holiday let mortgage criteria but there are some basic principles we can use to access all holiday let mortgage out there.
Here are some general holiday let mortgage criteria that you should be aware of:
Rental income
Your rental income will play a big factor in regards to if a holiday let mortgage lender will consider your mortgage application or not. Most mortgage lenders in this space will expect that you have a gross rental income that covers 14% of your monthly mortgage repayments on the holiday let mortgage when the mortgage is calculated at 5.5% interest rates. You will need to meet and pass this stress test for most mortgage lenders in the holiday let mortgage space.
Saying you meet the requirement isn’t good enough, most mortgage lenders will require you to actually prove that you have a gross rent which covers 145% of your monthly mortgage repayments by providing certified accounts on your property. If you are not yet renting out the property then you may want to contact a holiday letting agent who can pride a written estimate od potential rental income.
Most holiday let mortgage lenders will not accept rental projections which you have created yourself. To ensure you get a holiday let mortgage you should use third party agent who is reputable and can certify their statements.
Minimum income requirement
Most mortgage lenders in this space will also have a minimum income requirement but of course, this will vary from one holiday let mortgage lender to another as they all have a different holiday let mortgage criteria. The range usually starts from around £10,000 to £40,0000.
If you are a sole applicant then your minimum income requirement could be £20,000 and if you are joint applicants then one of you may be required to have a minimum income of £20,000 and a combined minimum income of £10,000.
Again, you will need to provide the mortgage lender with proof that you meet the minimum income requirement by providing payslips, tax returns or your accounts if you run a business.
Mortgage Deposit
You will also need a mortgage deposit when looking to get a holiday let mortgage. Most holiday let mortgage lenders have a criteria of 25% to 35% for their mortgage deposit requirements.
Maximum loan to value (LTV ) rate
Most holiday mortgage lenders will have a loan to value rate of 75% as the maximum they will lend on the property’s value. This means you will usually need a mortgage deposit of 25% at the very minimum.
Property structure and deeds
Most holiday let mortgage lenders will not lend on non-standard construction properties as they will need the property to be considered secure enough in case they needed to do a home repossession in order to recover the mortgage funds. Holiday let mortgage lenders will also look to ensure there are no easements or covenants that might limit the property’s value or make it harder to sell. They will also want to ensure that the property deeds do not forbid holiday lettings.
Most holiday let mortgage lenders will also have a minimum property value of £50,000.
Maximum holiday let portfolio
Most mortgage lenders will not want to lend to you if you have top many holiday let properties in your portfolio, they may each have their own holiday let mortgage criteria on how many other holiday let properties you can have in your portfolio which are mortgaged.
This will usually include buy to let properties.
Minimum and maximum loan sizes
Most holiday let mortgage lender have a max and min mortgage which they will provide.
Most holiday let mortgage lenders will provide a minimum loan value of £30,000 and a maximum of £750,000. Some mortgage lenders may also cap their maximum loan values to the loan to value rates of the mortgage.
Applicant Occupancy
You will usually not be allowed to live in the holiday let mortgaged property full time but you may be allowed to visit it and live in it for some amount of time as your holiday home. Your holiday let mortgage lender may tell you how many times you can reside in the home each year.
Applicants circumstances
To be able to get a holiday let mortgage you must already own your own home and be at least 21 years old. There can be a maximum of four applicants on a holiday let mortgage application but not all of them will be considered when looking at the mortgage affordability the group.
holiday let mortgage criteria (examples)
Holiday let mortgage criteria will differ from one mortgage lender to another. Below we will provide a list of mortgage lenders and their holiday let mortgage criteria so you can have an improved idea of what most mortgage lenders may be looking for.
The mortgage lenders below do not represent the totality of the holiday let mortgage market so you may be able to get a holiday let mortgage even if you do not meet or match the holiday let mortgage criteria below.
You should seek independent financial advice from a mortgage broker if necessary.
Holiday let mortgage criteria from Paragon
“Maximum LTV loan amount
The maximum loan to value per property for purchases and remortgages is:
Up to 70% LTV – maximum loan up to £500,000
Any fees that may be added to the loan are excluded from the LTV calculation.
Affordability
All calculations will be based on either the current reference rate published on our website, or the product charging rate plus 2%, whichever is the greater. The affordability of the application will be assessed in one of two ways:
Using the rental income that can be achieved on a monthly Assured Shorthold Tenancy for the property (AST), calculated at the standard Interest Coverage Ratio (ICR) percentages shown in the table below
Where two years holiday rental income can be evidenced by accounts, the gross annual rental income, averaged over 12 months, should be equal to or exceed the ICR of 150%.
There will be a secondary calculation to ascertain that holiday rental income can also cover a minimum of 100% of the achievable monthly AST rent
| Applicant type | AST rent used | Holiday let income |
| Basic rate tax payer (20%) | 125% | 150% |
| Limited Company | 125% | 150% |
| Higher rate tax payers (40%) | 140% | 150% |
| Additional rate tax payers (45%) | 140% | 150% |
Property
Available for single self-contained properties only, with no restrictive covenants regarding occupancy in place. The property must be capable of being let on an AST basis and have an acceptable level of rental demand. The property must be let on an approved holiday occupancy agreement, for a maximum period not exceeding one month. During the life of the mortgage, the property may subsequently be let out on an AST basis.”
Source- Paragon
Holiday let mortgage criteria from Cumberland (business)
“Lending area
We lend throughout mainland UK and the isles of Anglesey, Arran, Mull, Skye, Lewis, Harris and Wight
Maximum LTV
We can lend up to 75% of the property value
Loan size
The minimum loan size is £75,000
The minimum property value must be £150,000
We will consider up to 75% LTV for loans up to £1.5m and up to 60% LTV on loans between £1,500,001 and £2m.
Mortgage products displayed above apply to loans of up to £750k. For loans of over £750k, please call our team on 01228 403 135 to discuss the products available to you.
Term
Maximum mortgage term is 25 years
Property
Leasehold properties should have a minimum of 85 years left on the lease at the start of the mortgage and 50 years on maturity
Our product rates for are available for both new and established holiday let properties
Single or multiple unit properties acceptable
Properties which are temporary or moveable are not eligible
Rental coverage
To meet our criteria for rental coverage, annual net rental income must:
For standard variable rate products be a minimum of 125% of the annual mortgage interest at an interest rate of 6.25%
For non-standard variable rate products be a minimum of 125% of annual mortgage interest at the product interest rate +3%
For 5-year fixed rate products be a minimum of 125% of the annual mortgage interest at the product fixed rate”
Source –Cumberland
Holiday let mortgage criteria from Furness Building society
“Up to 90 days per year allowed for personal use
Maximum LTV 75%
Interest only or repayment basis considered
The applicants must own their own home
Rent must be at least 125% of interest payable at the initial product pay rate
Total applicants’ earned income should be at least £30,000
Applications underwritten on a “full status” basis
Affordability fully assessed using net earned income plus 50% of actual /anticipated gross rent (either actual amount received or anticipated rent as advised by a specialised holiday let agent) less all personal outgoings and the proposed new mortgage payment (stress tested at 8.79%)
Maximum of 1 holiday let mortgage per borrower (the maximum to remain at one account overall including for joint borrowers)
Where the applicant also holds buy to let properties, the maximum permitted exposure with the Society will be £500,000 and 5 properties and in total 10 properties and £1m (including any exposure with the Society)
3 months satisfactory bank statements to be provided
A satisfactory statement of Assets & Liabilities to be provided
Available mainland UK
Minimum valuation £125,000 (60% product £84,000 minimum valuation)
Minimum advance £50,000
No occupancy restrictions to apply to the security”
Source- Furness Building society
Holiday let mortgage criteria from Monmouthshire building society
LENDING AREA
England and Wales (including Isle of Wight, excluding Channel Islands)
MAXIMUM LTV
75% LTV
LOAN SIZE
Minimum loan £40,000
Maximum loan £1,000,000 for any single property
Maximum combined loan of £2 million for multiple holiday let properties
You can have a maximum of 3 Holiday Let properties mortgaged with the Society at any one time
TERM
Minimum Term 5 years
Maximum Term 40 years
APPLICANT(S)
Minimum age 21
Maximum age 85 based on the oldest applicant
Each applicant must be an existing owner-occupier
We will lend to first time landlords
At least one of the applicants must have a minimum income of £25,000 that is not derived from rental income
RENTAL COVERAGE
Minimum rental coverage of 145% (of mortgage interest payment) based on the initial pay rate plus 2%; or 5.5%, whichever is greater (our
Holiday Let Mortgage Calculator
will help you work this out)”
Source- Monmouthshire building society
Holiday let mortgage criteria from Leeds building society
- “Minimum income is restricted to at least £40,000 from primary applicant’s income
- Rental income must be at least 140% of interest payable on the stress rate of;
5.50% for purchases and capital raising remortgages
5.00% for non-capital raising ‘like-for-like’ remortgages - Maximum portfolio size of 10 mortgaged rental properties, irrespective of lender
- Maximum of 4 rental properties can be mortgaged with The Society, whether Buy-to-Let, Holiday Let or a combination of both
- No maximum age at term end
For full details of our holiday let criteria, view our criteria guide.”
Source- leeds building society
How to apply for a Holiday let mortgage?
To apply for a Holiday let mortgage you may want to first contact a mortgage broker.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases. This could be over 100 mortgage products. This may have some advantages than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which Holiday let mortgage products may be suitable for you.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home easier as more estate agents and sellers may take you seriously. Once you have found a home you want to buy the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your Holiday let mortgage with the help of a conveyancer.
In this brief guide, we discussed the Holiday let mortgage criteria. If you have any questions, let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.