Latest / Host Planet: Airbnb, Holiday Let, and Vacation Rental Insights / Holiday Let Mortgages Explained: When (and How) to Remortgage

Transcript

Holiday Let Mortgages Explained: When (and How) to Remortgage · Host Planet: Airbnb, Holiday Let, and Vacation Rental Insights

• 0:00
  This is the host Planet Mortgage podcast.
• 0:02
  Our goal is to share everything you need to know about holiday
• 0:05
  let mortgages. In today's show, we'll be
• 0:07
  discussing when owners need to remortgage a holiday let
• 0:10
  property with Joe Stallard from House and Holiday Home Mortgages
• 0:15
  and if you need any mortgage support.
• 0:16
  To get in touch with the team at Triple H Mortgages today, call
• 0:20
  O1453887179 or e-mail Hello at hhhmortgages.com.
• 0:28
  You can also visit the website for further details
• 0:31
  hhhmortgages.com/hostplanet. Joe, welcome back to the host
• 0:42
  Planet Mortgage podcast. Today we're going to discuss
• 0:45
  when owners will need to remortgage a holiday let
• 0:49
  property. So let's start with something
• 0:52
  that's a bit frightening when you've gone on to the standard
• 0:55
  variable rate. Yeah, there's an interesting 1,
• 0:58
  James. I think there might be people
• 0:59
  out there who realize that this hasn't happened to them.
• 1:02
  So typically what will happen is you will take a mortgage
• 1:05
  products that will have an incentive rate for a period of
• 1:09
  time. Typically you know, a two year
• 1:10
  fixed rate, 2 year discount rate, five year fixed rate.
• 1:14
  And then if you do nothing after those two or five years, you
• 1:18
  will automatically go on to what's called the lender's
• 1:20
  standard variable rate at that time.
• 1:23
  Now that is typically probably a couple of percentage points more
• 1:27
  than you need to be paying. And if it has happened, it might
• 1:32
  be worth having a conversation about looking at what else is
• 1:34
  out there, because there could be some really quick, quick wins
• 1:38
  to help you get onto a lower rate and control those mortgage
• 1:41
  payments. And it's one that I think, you
• 1:43
  know, most people are on top of their mortgages.
• 1:46
  But equally, it's very easy for if you're not at Fay with
• 1:48
  mortgages or if it's just the administration has just passed
• 1:52
  you by, you could be on that standard variable rate.
• 1:55
  So there could be a real quick opportunity there to to look at
• 1:58
  your mortgage and see if there's something better for you.
• 2:01
  Yeah. I mean, generally you would
• 2:02
  notice because usually your lender will get in touch with
• 2:05
  you at least about six months before maybe to offer you a new
• 2:09
  rate generally. And if you do go on to the SVR,
• 2:13
  if you look at your bank statements, you're probably
• 2:15
  going to notice that it's costing you more.
• 2:17
  And you might think, oh gosh, what's what's happened to my
• 2:19
  mortgage? So there are signs there, right?
• 2:22
  For sure. Yeah, absolutely.
• 2:23
  And you know, like you say, most people will notice, but you'll
• 2:26
  probably be surprised at the amount of people that come to us
• 2:29
  having slipped on to standard variable rate.
• 2:31
  Either they've got that notification and they've just
• 2:33
  not done anything with it or, you know, they might have moved
• 2:36
  address. So the correspondence, they
• 2:39
  didn't change that with their lender.
• 2:41
  So they've missed the notification.
• 2:42
  And then actually it's a couple of months before they noticed
• 2:45
  the increased payment on, you know, coming out the bank
• 2:48
  statement. So staying on top of it and and
• 2:50
  checking it out can can be a real quick win.
• 2:53
  And if you are on the SVR, switching to a new product tends
• 2:58
  to be fairly simple because you don't have any like early
• 3:01
  repayment charges because you're you're outside of that initial
• 3:04
  rate period, right? Correct.
• 3:06
  Yeah, you've kind of got two options there.
• 3:08
  There's either an opportunity to have a look at the whole of the
• 3:11
  market and see where the best deal for you is and go to
• 3:14
  potentially a new lender. That is called a remortgage in
• 3:19
  our world, simple to do because you're moving the money from one
• 3:23
  lender to another. There will be a legal element
• 3:26
  involved. There will be an application to
• 3:28
  the new lender, not as onerous as when you bought the property,
• 3:33
  but still some work to do. Or there's the quicker win,
• 3:36
  which is taking a new product with your existing lender.
• 3:39
  And as long as you've serviced that mortgage effectively
• 3:42
  throughout the life of it, the chances are they're going to
• 3:45
  offer you a new deal, a new two year fixed rate or whatever it,
• 3:49
  whatever it might be. So they can tend to be put in
• 3:52
  place quicker with less questions.
• 3:55
  I guess you know, the downside is there might be something
• 3:57
  better elsewhere. Then you've got to weigh up the
• 3:59
  the time and hassle versus overall cost.
• 4:02
  It's always good to check, right.
• 4:04
  I mean, what I've noticed that my last couple of remortgages is
• 4:08
  that the the best deal has actually been sticking with my
• 4:11
  current lender. So that's what I've done, but I
• 4:13
  have looked at the whole of market and there hasn't been
• 4:16
  anything better. That said, it's not always going
• 4:19
  to be optimum to stay with your current lender.
• 4:22
  Exactly, you know, and the circumstances might have
• 4:25
  changed, you might have done some work to that property and
• 4:27
  increase the value and suddenly you're in a different loan to
• 4:30
  value banding, which opens up a whole world of products you
• 4:33
  might not have had before. Or equally lenders, you know,
• 4:36
  they take on business in cycles. You know, sometimes they want to
• 4:40
  be really punchy with their their holiday let rates for this
• 4:43
  period. But then if they fill their book
• 4:45
  of lending, you know, they've got to go and lend more on on
• 4:48
  residential rates, for example. So their holiday let rates will
• 4:51
  creep up, their residential rates will come down.
• 4:54
  And actually, you'll find there's a benefit to to going
• 4:57
  and and taking a product with a new lender.
• 4:59
  So you know, having a look at the whole scenario, the rest of
• 5:03
  the market, existing lender, then you can make the most
• 5:06
  informed decision. OK.
• 5:08
  Then so the next one to consider, if you are a little
• 5:10
  bit more organized and you know the end of your rate period is
• 5:14
  coming up, when should you start looking at what's out there?
• 5:19
  Yeah. So this is we, we get in touch
• 5:21
  with our customers about six months ahead of their their
• 5:24
  rates ending. So most mortgage offers will
• 5:26
  come with a six month validity period.
• 5:28
  So we can start to look and secure something from about six
• 5:32
  months out. Most product transfers, so most
• 5:36
  existing lender rates will become available from about 3
• 5:40
  months. So it's that sort of three to
• 5:42
  six month period, we want to start working on it if we want
• 5:46
  to. If we're concerned about rates
• 5:48
  rising and we think that they're going in the wrong direction,
• 5:52
  then jumping on it from six months out and securing
• 5:54
  something is really the way to go.
• 5:56
  Because you know, we're not necessarily committed to taking
• 5:59
  that product out until you end up completing on it six months
• 6:02
  later. So if that lender's rates do
• 6:04
  improve during those six months, we can move rates down and make
• 6:07
  sure we get the benefit, but we then also protect against
• 6:11
  potential rate rises because once you've got your office
• 6:13
  secured, that's that's kind of your offer.
• 6:15
  So that three to six month window, we'll always suggest
• 6:19
  starting it about six months out, but you know, at least
• 6:22
  three. I think that's a really great
• 6:25
  point, isn't it? Because if you find a really
• 6:27
  good rate, you can lock it in. So even if interest rates start
• 6:32
  going up, you've still got that rate locked in for when your
• 6:36
  mortgage period ends. Exactly.
• 6:38
  That and you know, we need to be a little bit careful there.
• 6:41
  We need to see what fees come with the products.
• 6:42
  You know, for example, if there's a product fee and an
• 6:45
  application fee and suddenly we're going to be hopping around
• 6:48
  lenders. We don't want to be wasting
• 6:50
  client money. But if we're we're pretty
• 6:52
  confident with the lender, we know that they're going to be
• 6:55
  there or thereabouts in terms of having the best rates for that
• 6:58
  particular client and securing it six months and protecting
• 7:01
  against those rate rises can really pay dividends.
• 7:05
  Now the next one on the list is better rate and I imagine this
• 7:10
  is somebody, maybe they're on a fixed rate deal, but it's not
• 7:13
  particularly good and there's a better option available and even
• 7:16
  with early repayment charges and the like, it's better to switch.
• 7:22
  Yeah. So this is probably a little
• 7:24
  less common, but there might be scenarios whereby properties
• 7:28
  have been purchased using a really high interest rate.
• 7:32
  Perhaps there was something to do with the property that meant
• 7:34
  that had to be the case or the purchase type at the time.
• 7:37
  And actually rates have fallen to a point whereby actually when
• 7:41
  you do the sums, it's worth paying an early repayment charge
• 7:45
  and getting out of your existing mortgage and getting onto a
• 7:48
  better rate. We probably see very few of that
• 7:52
  in the current market. But equally, you know, there are
• 7:55
  some shocking rates out there. So.
• 7:57
  So technically sometimes it can it can add up.
• 8:01
  Yeah, usually, I mean you can look at the early repayment
• 8:04
  charges and everything else and if it's maybe, I don't know, .2
• 8:07
  or .3 or .5% lower, once you've done your sums, it doesn't
• 8:12
  really make much sense to switch.
• 8:15
  And you know, that's why I guess early repayment charges exist,
• 8:18
  don't it to, to keep people locked in on those rates.
• 8:21
  Next one which might be a little bit more common is a post
• 8:26
  refurb. Yeah, exactly.
• 8:28
  So if we think about a refurb, most holiday let lenders are
• 8:31
  actually when they when you're buying a property they're
• 8:34
  they're wanting the property to be in pretty good condition.
• 8:37
  However, there are some that if we can show you've got the means
• 8:41
  to refurbish that property over a few months and and we're not
• 8:46
  relying on the rental income because it's not going to be
• 8:48
  rented out to do so, then they would do it.
• 8:51
  Or equally we might have brought the property using some stage
• 8:55
  payment finance or a bridging loan or something like that.
• 8:58
  We love the property, we love the area.
• 8:59
  We just need to get it up to up to speed to rent it out.
• 9:03
  Well, actually by doing that refurb, we're probably hopefully
• 9:07
  increasing the value of the property.
• 9:09
  And I mentioned it earlier, but you may then find that your rate
• 9:13
  creeps down into your learn to value creeps down and you get a
• 9:17
  better rate because of of the amendments there.
• 9:19
  So, you know, having one eye on the refurb and doing it so that
• 9:23
  it's nice and attractive to guests and, and is going to get
• 9:26
  that property, you know, filled and let out as much as possible
• 9:30
  is one element. But the other element is what
• 9:32
  are we doing to value and what knock on implications does that
• 9:36
  have to our potential mortgage rates?
• 9:38
  Makes sense. OK, then And next one explain
• 9:42
  this for us, a change of rate type.
• 9:45
  Sure. So top level, we've got fixed
• 9:48
  rates where your rate is set for the product period.
• 9:52
  Let's use two years for example. In this circumstance and no
• 9:55
  matter what happens in the market or the economy, your rate
• 9:58
  is your rate for two years and as a result your monthly payment
• 10:02
  is going to be the same for that period.
• 10:04
  Variable rate products either tracker rates which don't so
• 10:08
  much exist in the holiday that space, but discounted rates are
• 10:13
  products that can vary during the life.
• 10:17
  So they would last for let's say 2 years again, but they would
• 10:20
  follow something like the bank, the bank or the lenders standard
• 10:24
  variable rate and have a discount off that.
• 10:27
  So this is for typically taken out in times where people
• 10:30
  believe that interest rates might be falling and therefore
• 10:34
  want to get the benefit of those falls as the Bank of England
• 10:38
  moves its base rate down or as lenders move their standard
• 10:41
  variable rates down. So that's in a nutshell, fixed
• 10:44
  versus variable. Now what we might have is a
• 10:47
  scenario where somebody has been on a variable rate, believes
• 10:52
  they've taken all the advantage of rates moving down and
• 10:55
  therefore have got it as low as possible and then now want to
• 10:58
  switch their rate type and fix it in and actually get off that
• 11:02
  that variability and onto the certainty of a fixed payment.
• 11:07
  Equally, somebody might come out of a fixed payment and think
• 11:10
  that rates are going to drop. So actually then we're going to
• 11:12
  take advantage of that and go for the variable rate option
• 11:17
  very hard. You know, nobody has that
• 11:19
  crystal ball and, and you know, we could certainly would never
• 11:23
  advise by promising that rates are going to do something during
• 11:26
  a period. But equally, some people have
• 11:29
  strong opinions on this and then some people have, you know, work
• 11:32
  in these markets and are educated and, and want to put
• 11:34
  this style of, of investment into their into their borrowing.
• 11:38
  Yeah, it's usually, I found that the variable rates tend to be a
• 11:43
  little bit more attractive than the fixed rates or they have
• 11:46
  been in the last few years. The only issue is, is when you
• 11:49
  take a variable rate out and then list trust has a budget,
• 11:53
  that can cause a problem as it did for me.
• 11:55
  So I had successive months of mortgage payments going up and
• 11:59
  up. So beware that next one then Joe
• 12:03
  on the list. Change of usage.
• 12:05
  Yeah. So I mean this is obviously the,
• 12:08
  you know we're talking about holiday let's and short term
• 12:10
  rentals here. But actually you might buy the
• 12:13
  property on that basis and and then decide throughout the life
• 12:16
  of it that that's not what you want to do with it anymore.
• 12:18
  So you know in the terms and conditions of the mortgage is
• 12:22
  going to be how you have to rent the property out.
• 12:24
  So if suddenly we want to put a longer term tenant in there,
• 12:28
  that means we're going to need to change product and look to
• 12:30
  remortgage at that period to a proper buy to let mortgage.
• 12:35
  There aren't really many mortgages that crossover the
• 12:38
  space because the affordability models are different.
• 12:41
  The lenders tend to be different.
• 12:43
  There's only one or two products I'm aware out there that will
• 12:46
  let you short let the property and buy to let the property kind
• 12:50
  of designed, I guess to put a tenant in there over the winter
• 12:53
  and then take advantage of the shorter term letting over a
• 12:56
  summer period. That's not very common.
• 12:59
  So if we want to change how we're using the property, be
• 13:03
  that put a long term tenant in there or actually, you know,
• 13:06
  we've bought the property with an eye that one day we're going
• 13:09
  to move into it, we're going to sell up and that and that's
• 13:11
  going to become our home. Then when we do that, we're
• 13:14
  going to need to put a residential mortgage on there.
• 13:16
  So just being really on top of the terms and conditions of what
• 13:19
  we're doing and making sure we're not in breach of any
• 13:22
  lenders and and how that how we should be using that property.
• 13:26
  Yeah, it's really important. You know, I've spoken to a few
• 13:28
  people in recent months and they will have residential mortgages
• 13:32
  and they're saying, oh, I want to go travelling and I want to
• 13:35
  rent my property out and I want to do it, you know, short term
• 13:37
  rental wise. And the first thing I say to
• 13:40
  them is, well, you know, have you told your lender?
• 13:42
  Because you have to tell them, you know, is it, is it
• 13:45
  allowable, you know, and if it's a flat, you know, is it in your
• 13:48
  lease conditions and all this kind of thing.
• 13:50
  So especially with mortgage and a lot of people, I've known a
• 13:53
  few people who have bought residential properties, they've
• 13:55
  lived in them a bit and then thought, right, I want to, I
• 13:58
  want to let them out. So, you know, technically you,
• 14:00
  you really do need to let your, your lender know because if
• 14:02
  something bad happens and they get wind of it, it, it might not
• 14:07
  end particularly well. I mean, if you are in breach of,
• 14:10
  you know, your mortgage terms and conditions, what what can
• 14:13
  the penalties be? The most extreme end of it,
• 14:17
  James, is it's considered mortgage fraud.
• 14:19
  So you know, the lender can immediately ask for their money
• 14:23
  back like tomorrow, they can ruin your credit file.
• 14:27
  It's not a situation you want to be in.
• 14:28
  So that's why you know, whenever you're looking to arrange a
• 14:31
  mortgage or where, whenever you're speaking to a broker to
• 14:34
  arrange a mortgage, being really clear on how you're going to use
• 14:37
  that property and what you want to do with it is absolutely
• 14:40
  vital. You know, this sector's got a
• 14:42
  lot more, you know, thanks to, you know, podcasts like this
• 14:45
  one. Education has really grown in it
• 14:47
  in, in the last few years. I'd say when we, you know, just
• 14:52
  before COVID sort of 2018 to 20/20/21, the main, the starting
• 14:58
  point for a conversation would be is I've tried to do a buy to
• 15:01
  let or another broker suggested I do a buy to let.
• 15:04
  I don't think that's right. How do I get a holiday let
• 15:07
  mortgage? So, you know, it's still very
• 15:10
  common and you know, just because you're renting the
• 15:13
  property out, that's not enough detail.
• 15:15
  We need to know how you're renting that property out.
• 15:18
  So we've covered the change of usage, then we've mentioned buy
• 15:21
  to let and residential, changing the ownership style.
• 15:25
  Yeah. So we're seeing an increase I
• 15:27
  guess in people wanting to take holiday let mortgages through a
• 15:31
  limited company structure or something like that.
• 15:34
  Historically, there haven't necessarily been the need.
• 15:36
  I'm not qualified or allowed to talk about tax or that side of
• 15:39
  things, but I'm sure you've got plenty of information to share
• 15:42
  with with people on that. But you know, it might be that
• 15:46
  the property has been bought through a personal name and now
• 15:50
  further down the line there's the want to switch it into the
• 15:53
  limited company structure. There are Ways and Means about
• 15:56
  going about that. But again, we'll need to make
• 15:58
  sure that the appropriate finance is on there because not
• 16:02
  so many lenders in the holiday that space do limited company
• 16:06
  products as of yet because there hasn't been that historical need
• 16:09
  I guess. Yeah, it's obviously a hot topic
• 16:13
  with tax changes and capital allowances and all that, all
• 16:17
  that kind of thing. I mean, usually if you want to
• 16:20
  switch from personal name to limited company, it's pretty
• 16:23
  tricky and it's quite expensive. So I think often the advice
• 16:29
  veers towards if you're purchasing then, you know, set
• 16:33
  up a limited company 1st and then purchasing the limited
• 16:35
  company. But switching between the two
• 16:37
  is, is tricky. But again, speak to the experts
• 16:40
  on that next one, then criteria reasons.
• 16:45
  Yeah. So through the life of owning
• 16:47
  the property, there might be a particular element of criteria
• 16:50
  that becomes more important when you're considering your
• 16:53
  remortgage. So a couple that come to mind,
• 16:56
  you know, suddenly you might be expecting to be coming into some
• 17:00
  money further down the line. So actually something like a
• 17:03
  larger overpayment allowance on your mortgage products might be
• 17:07
  of interest for your next remortgage.
• 17:09
  So, you know, the typical allowance is 10% percent of the
• 17:12
  loan amount each year. There are a few lenders that
• 17:15
  will go above that all the way up to about 50% in the right
• 17:18
  circumstances. So, you know, it might be that
• 17:21
  that product is initially higher priced, but if in eight months
• 17:25
  time you're going to pay off half your mortgage, you know
• 17:27
  that's that's going to offer you a benefit for doing so.
• 17:31
  Alternatively, you might want something like a particular
• 17:35
  feature that one lender has whereby they will waive early
• 17:38
  repayment charges if you sell the property.
• 17:41
  So you might go into it and thinking is this investment
• 17:44
  going to work, yes or no? Don't know.
• 17:47
  I want a bit of flexibility. OK, right, we'll go with that.
• 17:52
  It's not the best rate, but if I need to sell this property and
• 17:55
  bail out, I've got something that's not going to cost me, you
• 17:59
  know, 4 figures to get out of. So there are many little quirky
• 18:02
  features and pieces of criteria that different lenders have.
• 18:05
  So through kind of detailed conversations and, and fact
• 18:09
  finding with our clients, we can try and work out what's
• 18:11
  important. And it's not always the best
• 18:14
  rate. You know, rate and cost is is
• 18:17
  very important obviously, but actually there might be
• 18:20
  something in there that's going to give you way more benefit
• 18:22
  than a, you know, half a percent or whatever it is better off.
• 18:26
  Yeah, there's a lot more to it than than just the headline
• 18:28
  rate. Finally then, Joe, I'm sure this
• 18:32
  will interest a lot of people raising capital.
• 18:35
  Yeah. So, you know, if there's equity
• 18:37
  in the property that you want to utilize to, you know, go and
• 18:40
  purchase another property or maybe take out and give to
• 18:43
  family or do some home improvements or some
• 18:45
  improvements to that property, remortgaging and raising some
• 18:50
  capital at that point is often something that people do.
• 18:54
  So generally, you know, there needs to be at least 20 to 25%
• 18:59
  equity in the property as a starting point.
• 19:02
  So we'd want more beyond that to be able to pull some money out.
• 19:06
  But that remortgage is often the easiest point for people to do
• 19:09
  so rather than looking at further advances or second
• 19:12
  charges, which then bring in multiple product rates, multiple
• 19:16
  end dates, increased kind of mortgage management.
• 19:19
  If it were, if we can keep it simple and keep all of your
• 19:22
  borrowing on one product, remortgaging is a great time to
• 19:25
  look at that. Yeah, and one way of keeping it
• 19:28
  simple as well is to if you remortgage, take that money out,
• 19:31
  the lender wants to know that you're going to be able to
• 19:33
  afford the extra loan. So I did this before and it was
• 19:37
  like you, it's very simple is right.
• 19:39
  Well, I'm using this extra money to buy another property.
• 19:42
  So the rental income from this property will will cover the
• 19:45
  loan. Very simple.
• 19:46
  But are there scenarios as well where you know, like you said
• 19:48
  there, you know, you might want to give some money to family,
• 19:50
  for example, other lenders that will say, OK, we'll allow you to
• 19:53
  take out let's say 50 grand and and give it to family.
• 19:57
  They'll just want to see how it's going to be repaid.
• 20:01
  Yeah, exactly. So, so typically they're still
• 20:03
  looking at their security and the affordability models on
• 20:06
  that. So making sure that the rental
• 20:08
  numbers that you're expecting or achieving are going to cover the
• 20:13
  borrowing you've got already and the additional.
• 20:15
  So if that stacks up and if they're happy with with what
• 20:19
  you're going to be doing with the with the money, then that
• 20:22
  will be OK. Fantastic.
• 20:24
  OK then Joe, so if people have got questions or they need some
• 20:28
  advice, they need to remortgage, they need a holiday, let loan,
• 20:31
  tell us a bit more about Triple H mortgages and where people
• 20:34
  should go. Yeah, so Triple H stands for
• 20:36
  House and Holiday Home. We're a family run mortgage
• 20:38
  brokerage, completely remotely based.
• 20:41
  We've helped people all across the across the UK.
• 20:45
  Visit us at hhhmortgages.com or e-mail us at hello at
• 20:50
  hhhmortgages.com and we'll be very happy to chat through your
• 20:54
  scenario and see what's doable. Fantastic.
• 20:56
  We'll put all these details and links in the show notes.
• 20:59
  Joe, it's been a pleasure. As ever, thanks for joining us
• 21:01
  on the host Planet Mortgage podcast.
• 21:03
  Great stuff. Thanks.
• 21:04
  All right, that's it for today's host Planet Mortgage podcast.
• 21:06
  My thanks to Joe for giving us the lowdown on remortgaging.
• 21:10
  To get in touch with Joe and the team at Triple H Mortgages, call
• 21:13
  O1453887179 or e-mail hello at hhhmortgages.com.
• 21:21
  You can also visit the website for further details.
• 21:24
  hhhmortgages.com forward slash host dash planet.
• 21:28
  Until next time, happy hosting.