If our November and December 2019 mortgage business is an ongoing trend, then holiday let mortgages at 75% LTV are going to be very much in demand during 2020.
75% LTV holiday let mortgages accounted for 92% of all business transactions over this period
During the last recession, there was a long period, where the availability of a holiday let mortgage was restricted to a few lenders only, most pulled out of the market. Some never returned. During the recession, the LTV maximum was 60% in the pre-set lending criteria market, whereas just before the 2008 crash, LTVs on holiday let mortgage products had risen to 85%.
However, our research has found that mortgage lenders that offer holiday let products, have a low arrears ratio on that mortgage book. Even during the hard times, their mortgage books have performed well, against other sectors of the market.
In recent times, this knowledge has led to the availability of more 75% holiday let mortgage products across mortgage lending participants.
Will we see the return of 85% LTV holiday let mortgage products?
Unlikely, as lenders have to demonstrate to the Prudential Regulation Authority that they are lending responsibly. Although holiday let mortgages fall outside of FCA Regulation, the lenders themselves are Regulated by the PRA. Responsible lending is a key issue now and as income derived from holiday letting is seasonal in nature, lenders are likely to remain conservative on LTV rather than risk the wrath of the PRA.
Mortgage lenders specialising in mortgages for short term lets, holiday lets and self-catering accommodation, seem quite happy to set their maximum LTV (loan to value) for a holiday let mortgage at 75%.
However, rather than focusing on maximum LTVs, lenders are using niche criteria to compete for market share. A small specialist Bank, entered the market last month, with ground-breaking holiday let criteria and max loans to 75% LTV.
Mark Lanario of Drake Mortgages Limited was one of the consultants the Bank used to gain broker insight on exactly what customers need when looking for a holiday let mortgage product.
What do we mean by “niche” lending criteria?
A good example would be maximum loan size. Until recent times, although a couple of lenders stated 75% LTV holiday let mortgages, in their published criteria, the maximum loan available, regardless of interest cover was 750K.
Last month, the new market entrant doubled this maximum available loan to £1.5m at 75% LTV. This bold lending criteria, by a new entrant, shows the massive confidence that they have in the UK short-term rentals market. In addition, they removed the stipulation, that most lenders have in their criteria, in that applicants must be owner occupiers. Applicants at any loan to value, up to 75% LTV, must simply be able to demonstrate a rental history.
Another example of how the holiday let mortgage market, has developed its niche criteria is in the area of maximum age, not just on expiry, but application. Until recently, many mature borrowers would find themselves either caught out by one of the other of these criterion. A forward thinking lender has now entered the market with unique lending criteria on its holiday let mortgage products, with a maximum age of at expiry of 94 years at expiry of the mortgage.
Article first published on 14/01/2020