Hi All.
We are in the very early stages of looking in Scotland for a small holiday complex of around 3 cottages with a main house for us to live in.
If anyone else has a similar set up can you give me some advice on how to go about financing this. ie do I do it all with a mortgage or are there different types of loan that might work eg for business start up?
Can/should I have our house on a different mortgage to the holiday let cottages and how does this work if it's all on the same piece of land?
How do I work out what banks are likely to lend relative to the property value, our deposit, property income, other income? What banks are likely to be able to help.
Sorry if these questions are a bit basic. I did do some searches of the forum but with no joy. Thanks in advance.
Mortgage/finance for holiday let complex - newbie questions!
I'm not in the UK, but are you planning on getting a mortgage solely on the basis of income from holiday lets? Or will you have an income from elsewhere as well?
I know in France that to get a mortgage without a proven income is very difficult - I'm sure in the UK it would be too. And I wish I didn't have a mortgage - I'd be quite well off if I didn't, but as it is, I manage to live, one could say a lifestyle choice, but I'm far from rich with my rental business. Even with good occupancy (and I have good occupancy) the running costs/maintenance can be huge. Add to that a mortgage and you are talking a lot of money each month.
I know in France that to get a mortgage without a proven income is very difficult - I'm sure in the UK it would be too. And I wish I didn't have a mortgage - I'd be quite well off if I didn't, but as it is, I manage to live, one could say a lifestyle choice, but I'm far from rich with my rental business. Even with good occupancy (and I have good occupancy) the running costs/maintenance can be huge. Add to that a mortgage and you are talking a lot of money each month.
Are you buying an existing business or starting from scratch?
I know that I looked at a B&B in the UK before deciding on France, but it was impossible to get a business loan because the owners put so little money through the books that it wasn't a viable proposition for the banks. If you are starting from scratch and can do your homework on other holiday lets businesses in the area (by checking their availability calendars) you might have more of a case. If you have an additional income, that can only help.
I know that I looked at a B&B in the UK before deciding on France, but it was impossible to get a business loan because the owners put so little money through the books that it wasn't a viable proposition for the banks. If you are starting from scratch and can do your homework on other holiday lets businesses in the area (by checking their availability calendars) you might have more of a case. If you have an additional income, that can only help.
Hi hdobb
Good luck with the hunt!
There are some similarities between what we did and what you're proposing - we have three holiday lets in a barn conversion in the grounds of our house in Cumbria. However, we bought the property and had the barn converted, so a bit different there, and we only borrowed a relatively small amount towards the end of the barn conversion (which took two years!), with no other mortgage or borrowings, so can't help on the likely amounts a lender might consider.
Here's some randomly arranged thoughts:
We got a business loan from our bank, with the house as security - so pretty much like a mortgage in some respects. However, the loan was for the purpose of fittings/finishings etc etc for the holiday lets, nothing to do with the house, and nothing to do with the costs of purchase and building work for the lets, so interest payments are fully allowable for tax - one to keep in mind.
The bank (HSBC in our case) did want to see a business plan, which I arrived at by waving a wet finger in the air and making it look pretty with lots of graphs. Business Account Managers like graphs, particularly if they're colourful. They also like to come and visit you annually and see how you're progressing against your plan, which is very good for focussing the mind.
Drawing up a business plan is a whole different topic, but there's a few things to consider, and it will be very different if you're buying a ready-made business or starting from scratch. Starting from scratch, it takes a while to build the business to a healthy occupancy level, and that will also be affected by the demand for holiday accommodation in your chosen area. Repeat business and word of mouth recommendation are a very significant factor, and it takes time to establish; anything less than three years to reach the typical occupancy for the area may well be wildly optimistic. Hence income in that time is less than (hopefully!) it's going to be down the line, whilst outgoings are quite likely to be higher, particularly initial marketing costs and unforeseen purchases.
Anyone lending to a business is aware that the first couple of years are tough, and you should be able to get an interest-only agreement for a year or two if it suits you; the bank has nothing to gain by imposing conditions that make a business non-viable whilst it's obviously getting established.
You're going to need a decent accountant who is familiar with the holiday letting industry, and as accountants and money lenders all seem to sleep in the same bed he or she could probably advise on some of the other questions, based on local knowledge.
I'm sure there's loads of other things to think about, and you'll find plenty of support here!
edited to add - I didn't see LV's last post re existing v starting from scratch before I made this one - it's a good point about what's shown as income, and one we hit when we were searching.
Good luck with the hunt!
There are some similarities between what we did and what you're proposing - we have three holiday lets in a barn conversion in the grounds of our house in Cumbria. However, we bought the property and had the barn converted, so a bit different there, and we only borrowed a relatively small amount towards the end of the barn conversion (which took two years!), with no other mortgage or borrowings, so can't help on the likely amounts a lender might consider.
Here's some randomly arranged thoughts:
We got a business loan from our bank, with the house as security - so pretty much like a mortgage in some respects. However, the loan was for the purpose of fittings/finishings etc etc for the holiday lets, nothing to do with the house, and nothing to do with the costs of purchase and building work for the lets, so interest payments are fully allowable for tax - one to keep in mind.
The bank (HSBC in our case) did want to see a business plan, which I arrived at by waving a wet finger in the air and making it look pretty with lots of graphs. Business Account Managers like graphs, particularly if they're colourful. They also like to come and visit you annually and see how you're progressing against your plan, which is very good for focussing the mind.
Drawing up a business plan is a whole different topic, but there's a few things to consider, and it will be very different if you're buying a ready-made business or starting from scratch. Starting from scratch, it takes a while to build the business to a healthy occupancy level, and that will also be affected by the demand for holiday accommodation in your chosen area. Repeat business and word of mouth recommendation are a very significant factor, and it takes time to establish; anything less than three years to reach the typical occupancy for the area may well be wildly optimistic. Hence income in that time is less than (hopefully!) it's going to be down the line, whilst outgoings are quite likely to be higher, particularly initial marketing costs and unforeseen purchases.
Anyone lending to a business is aware that the first couple of years are tough, and you should be able to get an interest-only agreement for a year or two if it suits you; the bank has nothing to gain by imposing conditions that make a business non-viable whilst it's obviously getting established.
You're going to need a decent accountant who is familiar with the holiday letting industry, and as accountants and money lenders all seem to sleep in the same bed he or she could probably advise on some of the other questions, based on local knowledge.
I'm sure there's loads of other things to think about, and you'll find plenty of support here!
edited to add - I didn't see LV's last post re existing v starting from scratch before I made this one - it's a good point about what's shown as income, and one we hit when we were searching.
We only bought a single holiday let but we were asked to evidence the income - we didn't have any income as, although other properties in the area had rented, ours didn't at the time. We got a local agency (who we were considering going through but quickly rejected because of their charges) to give us a letter setting out their expectation of likely income which the mortgage company took at evidence. You do need to go to holiday let specialist mortgages and get their advice.
Good luck!
Good luck!
Greenbarn - thank you for all your suggestions. We are hoping to go for an established business but the searches I've done so far have shown up very little so may end up going down the same route as you of buying something with buildings we could convert. Do you know of anywhere particular that existing businesses of this sort are advertised for sale - I've found seaside cottages and there's some interesting property on Savilles.
Goosie, who would you suggest I should look at for holiday let specialist mortgages?
Thanks
Goosie, who would you suggest I should look at for holiday let specialist mortgages?
Thanks
The short answer to your question is no - we didn't find anyone specialising in sales of holiday rental businesses, or indeed properties with the potential.
We spent about a year searching, nine months of which we were living within our approximate search area of North Yorks (and ended up in Cumbria.......) with the search as a full time occupation. Much Googling, daily checks on agents' websites etc etc, registering our interests with a number of agents (but still finding properties on their websites before they contacted us with them), looking at countless properties - eventually I found our final destination when I expanded the search area just a bit. One of the major issues comes down to something seemingly simple - do you want a business with somewhere to live, or somewhere to live with a business? There's a very big difference, and the difference dictates your lifestyle.
At one point we seriously considered hiring a finder. With the benefit of hindsight, if we were doing it all over again that's what we'd do. It would've cost several thousand (but who knows what purchase price he or she might have negotiated?) but it would have been worth it in saving hassle and time - and the time would've been spent getting the conversion done and the business up and running sooner. These people often hear about properties before they hit the general market, and do the initial legwork; and they can talk the talk (think Kirstie Allsopp......) They should also be able to advise to some degree on issues such as planning permission.
If you're looking for a place to convert, there's more things to consider with your blank sheet, such as three 2-4 bed properties, or maybe two properties with one catering for large groups of say 8 plus? The possibilities are endless!
BTW - we're really enjoying it. Well, most of the time.......
We spent about a year searching, nine months of which we were living within our approximate search area of North Yorks (and ended up in Cumbria.......) with the search as a full time occupation. Much Googling, daily checks on agents' websites etc etc, registering our interests with a number of agents (but still finding properties on their websites before they contacted us with them), looking at countless properties - eventually I found our final destination when I expanded the search area just a bit. One of the major issues comes down to something seemingly simple - do you want a business with somewhere to live, or somewhere to live with a business? There's a very big difference, and the difference dictates your lifestyle.
At one point we seriously considered hiring a finder. With the benefit of hindsight, if we were doing it all over again that's what we'd do. It would've cost several thousand (but who knows what purchase price he or she might have negotiated?) but it would have been worth it in saving hassle and time - and the time would've been spent getting the conversion done and the business up and running sooner. These people often hear about properties before they hit the general market, and do the initial legwork; and they can talk the talk (think Kirstie Allsopp......) They should also be able to advise to some degree on issues such as planning permission.
If you're looking for a place to convert, there's more things to consider with your blank sheet, such as three 2-4 bed properties, or maybe two properties with one catering for large groups of say 8 plus? The possibilities are endless!
BTW - we're really enjoying it. Well, most of the time.......
subject
Please read today's Sunday times. There is an article on this including changes to the taxation rules. In the present climate the changes are not in our favour as tax payers.
Banks, could lend upto 60% of the value with some silly rates. The current margins above BOE rates is about 4,29% this margin will remain and as interest rates go up. You could soon be paying rates which will make the business not viable. If it is already not viable.
Banks, could lend upto 60% of the value with some silly rates. The current margins above BOE rates is about 4,29% this margin will remain and as interest rates go up. You could soon be paying rates which will make the business not viable. If it is already not viable.
We already successfully let 3 properties - 2 in London and one in Spain. We have 2 year's of accounts showing profits of about 20k last year over the 3 properties (the spanish one makes a loss but the London ones are good), and forecast that profits would be higher this year.
We were interested in buying another London property last year and found one that we really liked for 250,000. We had 90,000 availalble to put down (borrowed out of our other properties) and the rest we wanted on an 80% interest only mortgage because of the costs of fitting it all out and legal costs.
We also both have full time jobs earning about 70k between us.
Absolutely could not get one. 75% was also virtually impossible and we calculated things would be too tight financially on that.
We talked to the banks and the mortgage adviser several times, and pointed out that we were a profitable business with proven income, plus we also had jobs outside of that.
It all came to nothing and reluctantly we had to walk away from it. Still pi**ses me off now that the banks just would not lend. They have a lot to answer for. A few years earlier they would have had no trouble lending to us, even if we had no other income from jobs.
I looked into specific mortgages for holiday lets; they don't seem to exist. This was a buy to let interest only mortgage.
At one point we thought we had cracked it when the bank said they would offer us 80%, interest only. When the paperwork came through, it was a repayment mortgage at something stupid like about 4k per month repayments. (it was a 15 year term). My husband rang the bank in disgust to point out that they were willing to lend us money to be paid back at a completely unaffordable amount for the income figures they had; but not an interest only loan which would have been affordable and the whole amount being interest, would be tax deductable; whereas on a repayment only the interest is tax deductable.
that's just our experience of it.
I hope you have better luck.
We were interested in buying another London property last year and found one that we really liked for 250,000. We had 90,000 availalble to put down (borrowed out of our other properties) and the rest we wanted on an 80% interest only mortgage because of the costs of fitting it all out and legal costs.
We also both have full time jobs earning about 70k between us.
Absolutely could not get one. 75% was also virtually impossible and we calculated things would be too tight financially on that.
We talked to the banks and the mortgage adviser several times, and pointed out that we were a profitable business with proven income, plus we also had jobs outside of that.
It all came to nothing and reluctantly we had to walk away from it. Still pi**ses me off now that the banks just would not lend. They have a lot to answer for. A few years earlier they would have had no trouble lending to us, even if we had no other income from jobs.
I looked into specific mortgages for holiday lets; they don't seem to exist. This was a buy to let interest only mortgage.
At one point we thought we had cracked it when the bank said they would offer us 80%, interest only. When the paperwork came through, it was a repayment mortgage at something stupid like about 4k per month repayments. (it was a 15 year term). My husband rang the bank in disgust to point out that they were willing to lend us money to be paid back at a completely unaffordable amount for the income figures they had; but not an interest only loan which would have been affordable and the whole amount being interest, would be tax deductable; whereas on a repayment only the interest is tax deductable.
that's just our experience of it.
I hope you have better luck.
Nightowl
Forever going one step forwards and two
backwards......
Forever going one step forwards and two
backwards......
mortgage for holiday complex etc
Don't know whether you are still looking..
I own one such in Kintyre with business partner.
Standard Life were I think the only company offering buy-to-let mortgages at the time, though Cumberland Building Society also do I think.
Scottish lawyers are adept at dividing deeds up since they do it with blocks of flats all the time. You would certainly get a cheaper mortgage on the residential bit, so my guess is that it would usually be worth doing.
If you have other questions eg re purchase of our complex! look at website www.kilchristcastlecottages.iowners.net Hope it's allowed to post the website, am new to this forum.
I own one such in Kintyre with business partner.
Standard Life were I think the only company offering buy-to-let mortgages at the time, though Cumberland Building Society also do I think.
Scottish lawyers are adept at dividing deeds up since they do it with blocks of flats all the time. You would certainly get a cheaper mortgage on the residential bit, so my guess is that it would usually be worth doing.
If you have other questions eg re purchase of our complex! look at website www.kilchristcastlecottages.iowners.net Hope it's allowed to post the website, am new to this forum.