From Unlettable Purchase to Trading Holiday Let: A Bridge-to-Holiday-Let Exit

The Situation

Our client found a property in a strong holiday letting location and wanted to run it as a short-term holiday let. The difficulty was condition.

In its current state the property was not fit for immediate letting and would not meet a holiday let lender’s requirements, so a standard holiday let mortgage was not available on day one.

The client needed a way to complete the purchase quickly, carry out the works, and then move onto suitable long-term finance once the property was ready to trade.

Why a Holiday Let Mortgage Wasn’t Available Yet

Holiday let lenders assess a property on the basis that it can be let. Where a property is not currently habitable or lettable, most holiday let lenders will not offer a mortgage until the works are complete and the property meets their standards.

Attempting to force a holiday let mortgage through at purchase would have failed, so a different structure was needed for the acquisition phase.

Related: A Holiday Let Property Guide

The Structure We Arranged

We identified a two-stage route and planned the exit before the first facility was drawn, which is the single most important part of any bridging case:

Stage one: bridging loan to purchase

We arranged a bridging loan to complete the purchase and provide the funds for refurbishment.

Bridging finance is designed for exactly this situation, where speed is needed and the property is not yet mortgageable. A bridging lender will only lend where there is a clear and credible exit, so we evidenced the planned holiday let remortgage from the outset, including the works schedule and realistic post-works value and rental figures.

Stage two: holiday let mortgage as the exit

Once the refurbishment was complete and the property met lettable standards, we arranged a holiday let mortgage to repay the bridging loan. Remortgaging onto a holiday let mortgage is one of the most common ways to exit a bridge, and because we had planned it in advance, the transition from short-term to long-term finance was smooth.

Learn more: What can a bridging loan be used for

The Six-Month Rule, and How We Advised On It

Early in the process we made the client aware of the six-month mortgage rule.

This is an industry guideline, not a law, under which many lenders will not remortgage a property until it has been owned for at least six months. It is applied differently from lender to lender, and it affects how soon a bridge can be exited and which lenders are available.

We explained the client’s options clearly:

• Waiting until six months’ ownership would open up the full holiday let market, giving access to the widest choice of lenders and the most competitive rates.
• There is a lender that will consider a day one remortgage from a bridge, without waiting for six months. This option exists and can be useful where timing is critical, but at the time the rates available on that route were higher than the mainstream market, so exiting immediately would have cost more.

The Outcome

The client completed the purchase quickly using the bridging loan, carried out the refurbishment, and then exited onto a holiday let mortgage once the property was trading and the six-month point had been reached.

This gave access to the full market and a more competitive rate than an immediate day one exit would have offered at the time. The client made an informed choice, with the faster day one route explained as an option, and chose the structure that best balanced timing and cost.