Our client owned a holiday let outright and wanted a second one, with the deposit coming from the equity in the first. The sticking point was not how much equity was available, but why the money was being raised.
Not every holiday let lender allows capital raising for an onward purchase. We found one that does, and the funds were released.
| Client | Established holiday let owner, expanding their portfolio |
| Security property | Trading holiday let owned outright (unencumbered) |
| Objective | Raise a deposit to purchase a second holiday let |
| Key issue | The reason for raising the money determined which lenders would lend |
| Drake’s role | Established the purpose, then placed the case with a lender that permits it |
The Situation
Our client owned a holiday let outright, with no mortgage against it.
The property had a solid trading history and had performed well over several seasons. Having built up experience running it, the client wanted to expand and buy a second holiday let, and planned to use the equity in the existing property to fund the deposit and purchase costs for the new one.
A property owned outright is described as unencumbered. Raising money against it is, in effect, putting a new first charge mortgage in place where there was none before.
Because the client was starting from a position of no borrowing, they had a good deal of flexibility over how much to raise, but the way the case was presented to lenders still needed care.
How the property is being used will dictate the type of mortgage needed.
In this case it would be a holiday let mortgage, or a remortgage to be specific. Our guide to holiday let mortgages explains how they work, including suitable property types, locations and income requirements.
Why the Reason for Raising the Money Mattered
A common misunderstanding is that capital raising is simply about how much equity is in the property.
In practice, lenders are equally concerned with why the money is being raised. The stated purpose of the funds is a central part of the application, and it directly affects which lenders will and won’t lend.
This is where establishing the client’s intentions at the outset was essential.
The purpose here was to raise a deposit to purchase another holiday let. That is an acceptable reason for many lenders, but not all treat it the same way:
- Some lenders are comfortable with capital raising to fund an onward property purchase, provided the purpose is clearly declared and the wider plan makes sense.
- Others restrict what raised funds can be used for, or will not permit certain purposes at all, so presenting this case to the wrong lender could have led to an unnecessary decline.
- Above certain amounts or loan to value levels, a lender may ask for evidence of how the funds will be used, so the purpose has to be genuine and supportable, not just stated.
Had we not confirmed the reason for the raise before approaching lenders, the case could easily have been placed with a lender whose criteria did not allow it. Establishing the purpose first is what allowed us to match the application to a lender that specifically accepts raising a deposit to buy another holiday let.
How We Placed the Case
We began by confirming the full picture: the purpose of the funds, the amount needed for the onward purchase, the trading performance of the existing property and the client’s overall plan for the two properties together.
With the purpose established, we reviewed the market for lenders whose criteria met the case, rather than simply the cheapest headline rate.
We then packaged the application so the underwriter could see clearly:
- That the security property was an established, trading holiday let with a genuine letting history.
- That the raise was a new first charge on an unencumbered property, at a comfortable loan to value.
- That the purpose was to fund the deposit and costs on a further holiday let purchase, with the onward plan set out.
- That the rental income on the security property supported the new borrowing under the lender’s assessment.
The Outcome
The holiday let remortgage completed on the unencumbered property, releasing the funds the client needed for the deposit and purchase costs on the second holiday let.
Because the case was matched to a lender that accepts this purpose from the start, the application progressed without the purpose becoming an obstacle, and the client was able to move forward with the onward purchase.
The result was a client with an income-producing property now working harder for them, funding the growth of their holiday let portfolio, while retaining substantial equity in the original property.
Why This Matters
When raising capital against a property, especially an unencumbered one, the amount of equity available is only part of the story.
The reason for raising the money is just as important, because it determines which lenders will accept the application. Identifying the purpose clearly at the outset, and matching it to a lender whose criteria permit it, is what turns a potentially awkward application into a straightforward one.
As a whole of market broker, Drake Mortgages establishes the full picture before approaching lenders, and arranges holiday let remortgages for capital raising, portfolio expansion and a wide range of other purposes.
To talk through raising money against a holiday let, call Drake Mortgages on 020 8301 7930
This case study is illustrative and based on a typical client scenario. It does not constitute advice, and rates and lender criteria change. Every application is assessed on its own circumstances.
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