Can anyone offer advice on buying a house which has 2 separate holiday cottages.

BuffetSlayer · 18 May 2017 at 19:10

Hi all

My wife and I are looking at making some lifestyle changes. Whilst browsing a paper we found a house with land and two established holiday cottages.

The asking price is more than we can currently afford but I wondered how it would work, mortgage wise, taking into account the turnover on the holiday lets?

The plan being to use it to subsidise the purchase in terms of paying the monthly mortgage providing there are audited accounts for evidence of turnover/profit.

Does anyone have any experience of this kind of arrangement? The main house is private and would be our home and the holiday cottages would be a a business and let all year round for 1-2 weeks at a time.

Psycho Sonny · 19 May 2017 at 12:14

i imagine you would need a mortgage for the home then a business loan from the bank for cottages.

i doubt you would get a bank willing to do that unless you were putting down a serious amount of capital as well as your home up as security. e.g. not a small deposit (20% minimum the closer to say 40% or more the better).

you cannot use future estimated revenue within a mortgage application. it's all about what your earning now. when i was going for a mortgage i told them i'm due a promotion soon i'm on a waiting list but you never know it could fall through. they were only willing to take my earnings at the time as apposed to what they are right now after i finally got the promotion 8 months later.

mattyg · 19 May 2017 at 12:20

You'll struggle to get a residential mortgage on a property with a commercial aspect.

You may be able to split the deeds and then get a commercial mortgage for the cottages. But the cottages would need a proven track record of profit to be able to sustain the mortgage.

Rroff · 19 May 2017 at 12:34

As above I can't see you getting a mortgage to cover that even with split options, etc. unless you have significant capital/collateral as well - only way to know for sure would be to approach a few lenders and see what they say.

Mercenary Keyboard Warrior · 19 May 2017 at 15:01

Was wondering about this today and its certainly tricky.

What I was wondering is if you could effectively bridging loan it. So take a bridging loan for say £1.5M (i'm just making number up here to demonstrate)
Then mortgage the house only to a traditional lender, say for £1M. Repaying a large amount of the bridging loan, and leaving a small bridging loan of £0.5M

You could then look to refinance the bridging loan to a business loan on the holiday premises.

You would in effect need to split the site I guess formally into two plots with land registry to allow 2 separate mortgages.

The bridging loan will be expensive, so you would need some good certainty on the holiday lets being able to bring in enough to cover this finance should you fail to be able to refinance it.
And it looks like a nice earner if you can afford to cover times when they don't let, but if thats a stretch it sounds like a little too much of a stretch for you overall.

Entai · 19 May 2017 at 16:52

You will need a standard mortgage on the main house, then most likely a holiday let mortgage for the cottages, this is not like a normal buy to let, but a lot more expensive and only a small handful of lenders operate those kind of mortgages. Big high street lenders tend to steer clear of holiday lets due to the sporadic nature of the rental income.

As with buy-to-let, the deposit requirement for holiday lets are higher than for residential home loans. Cumberland Building Society, for example, requires a minimum deposit of 25%, while Leeds Building Society looks for 30%.

Monmouthshire building society for example requires holiday let borrowers to earn at least £40,000 a year from their main job, and that income is not including earnings from the holiday lets.

Finally do not ever plan on getting 52 weeks a year occupancy as that will never happen, on average, UK-based holiday lets can expect to achieve 28 weeks per year fully booked.
Obviously, this figure is location dependant even within the UK, but that is the National average.

As a comparison, holiday rentals located in warmer climes get an industry average of 36 weeks per year fully booked.

mattyg · 19 May 2017 at 16:57

I've been looking at a possible holiday let. I have a contract with a client that means I'm providing cover in Devon for 20 weeks throughout the year. We are currently charging for hotels etc. But If I bought a let I know I've got it full 20 weeks a year.

Should have bought a static 5 yrs ago though

BuffetSlayer · 19 May 2017 at 20:53

Thanks for the input guys.

I felt it was a little ambitious and further research confirms that. Was an idea that I think we will abandon for the time being, or at the very least look at cheaper options.

The place is on for offers around £650k. So even with the revenue from our house sale we would be well short of the kind of deposits banks would be asking for.

We would also not pass affordability stress testing if we cant take into account the business income. I was basing the business income on around 25 weeks letting per cottage per year.

Shame really as its a great opportunity. I think we could make the numbers work well but the banking climate precludes us even trying in terms of deposit requirements.

I also had not factored in business insurances - im assuming I would have to have public liability indemnity? I also would need to do detailed sums on the upkeep - gas and electrical testing too et al.

We just aint rich ebough!!