Deposit Required for Holiday Let Mortgage
Everything you need to know about deposits required for holiday let mortgages, as explained by Chris Needham
How much deposit is needed for a holiday let mortgage? Is there a minimum?
For a holiday let mortgage the minimum deposit you’ll need is 25% of the value of the property. All lenders for holiday let mortgages have that requirement.
A few of them offer different rates if you’ve got a larger deposit than that. For instance, if you’ve got a 40% deposit you might attract a better interest rate. But certainly the minimum is 25% of the property value.
How do I prove where my holiday let mortgage deposit comes from?
Wherever the deposit is coming from, we would need to collect evidence to satisfy the lender that it’s genuine.
A lot of people use their savings, wanting to turn that into an investment through buying a holiday let property. For personal savings, we just need statements showing the buildup of savings over a period of time – maybe six months.
Some lenders would accept a gifted deposit, so if you haven’t got all of the deposit yourself, you might be able to get a gift from a family member. We’d need evidence – maybe a letter from them to confirm they are happy providing that deposit as a gift.
Some clients also release money from their existing property. They might extend their mortgage to raise the capital and that’s a common way to get the deposit together.
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Will having bad credit affect the size of the deposit I can put down?
No. With a holiday let property you will definitely need a minimum of a 25% deposit.
If you’ve had issues with your credit in the past it’s more likely that the lender will either accept your mortgage or decline it. They won’t say that you need a bigger deposit to get the mortgage agreed.
It’ll just depend on how bad the adverse credit was and how long ago it was. We need to know whether it was a default or a County Court Judgment for example, and whether that debt has been settled. Based on that, a lender will either accept or decline the mortgage application.
That’s where a broker can help. Once we understand the nature of your previous credit we can work out the most suitable lender to use. But it certainly won’t affect the amount of deposit that you need to put down on the property.
Sometimes, if you’re buying a residential property to live in where you’ve only got a 5% deposit and your credit score isn’t high enough, the lender might come back and say they will lend to you if you can find a 15% deposit.
It’s not quite like that on holiday let mortgages. The calculations and the criteria are different, and because you already need a 25% deposit it’s a straight case of whether the lender will accept your credit history or not.
How can a mortgage broker help you with a holiday let mortgage deposit?
It’s always a good idea to speak to a mortgage broker in advance of starting to look at properties. That way you will understand the lenders’ criteria, the amount of income the property will need to generate and how the lenders assess the applications.
Just talk into a mortgage broker well in advance. We’ll make sure that you’re armed with the right information when you go looking at properties. We know which lenders will offer holiday let mortgages and which ones have most suitable rates.
Some lenders are more likely to lend on certain types of properties. So talk to a mortgage broker right at the start, to be armed and ready to go out looking at properties – rather than falling in love with a property that we then can’t get a mortgage on.
Your property may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate some forms of Buy to Let Mortgage.