Case Study: Live/Work Holiday Let Purchase

The Client

Our client, an employed professional earning £174,000 a year, came to us wanting to buy a property made up of three self-contained units. His plan was to live in one unit as his home and run the other two as holiday lets.

He already owned his own home, which carried plenty of equity. He intended to sell it, but at the time of his enquiry it was on the market and not yet under offer.

The Objective

To secure the purchase of the three-unit property ahead of competing buyers, with long-term finance in place from the day of completion, and without having to wait for his own sale to go through.

The Complication

A market led by cash buyers

Properties of this kind are mostly bought by cash buyers or by buyers with no chain. Agents tend to give little weight to an offer that depends on mortgage finance, and less still to one that also depends on the buyer selling a home that is not yet under offer. In our experience, purchases like this rarely complete on mortgage finance at all. Our client needed to show the agent he could proceed on terms close to those of a cash buyer.

An unregulated mortgage

Where a borrower or a close family member will occupy at least 40% of a property as their home, the mortgage is likely to be a regulated mortgage contract. Here, our client would be living in one unit out of three, which fell below that threshold. The mortgage on the new property would therefore be unregulated.

That matters because it changes both the lenders who will consider the case and how they assess it. Regulated lenders lend mainly against personal income. On an unregulated basis, the lender looks mainly at the income the property itself can produce, so a strong salary alone would not carry the application.

A multi-unit security

Many holiday let lenders will only accept a single dwelling on a single title. Three units on one title, one of them owner-occupied, narrows the field considerably.

How We Assessed Options

We looked at three ways our client could fund the purchase, measured against what mattered most to him: being able to compete with chain-free buyers, keeping costs reasonable, and avoiding any reliance on a short-term exit.

Step 1: Waiting for the sale

The simplest route was to wait until his home was sold and use the proceeds as the deposit. With no buyer yet in place, his offer would have been chain-dependent from the outset, and in a market where sellers favour cash buyers the property would very likely have been lost. This was ruled out.

Step 2: Bridging finance

A bridging loan could have funded the purchase straight away, to be repaid later from his sale proceeds and a holiday let mortgage. It would have made him a strong buyer, but it carried real risk. Bridging is short term and costly, the exit depended on his sale completing within the term, and even with an agreement in principle at the outset there was no guarantee a holiday let lender would refinance when the time came. Because he had a lower-risk alternative available, this was ruled out.

Step 3: Raising the deposit on his current home

Our client had plenty of equity in his home, so we remortgaged it to release the deposit. We placed the new loan on a residential product with no early repayment charges, so it can be repaid in full from the sale proceeds without penalty once his home sells. His income comfortably supported the home loan alongside the new holiday let mortgage during the overlap, which is how the lenders assessed it.

Identifying the Right Route

With the deposit raised, the next step was finding a holiday let lender that would accept the property as it stood.

We identified a lender that would:

• lend on a multi-unit property held on a single title
• accept the purchase on an unregulated basis, with the client living in one of the three units
• assess the loan on the projected holiday letting income of the property
• use our client’s salary of £174,000 as his qualifying personal income

Both pieces of finance were arranged together. That meant our client could go to the agent with his deposit available and his long-term mortgage agreed, rather than an offer that depended on a sale and a later refinance.

The Outcome

Our client was able to proceed on terms close to those of a chain-free buyer, without bridging finance and without waiting for his own sale. His long-term holiday let mortgage is in place from completion, so there is no short-term exit to manage.

When his home sells, the residential remortgage will be repaid from the proceeds with no early repayment charge, leaving a single holiday let mortgage on the new property.