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Advice about mortgage for house plus 3 holiday cottages

iambic
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Advice about mortgage for house plus 3 holiday cottages

#396166

Postby iambic » March 16th, 2021, 2:17 pm

Hi there,

My husband & I have accepted an offer on our house & have found a property (after a lot of searching) which, on paper at least, looks like exactly what we're after. We're viewing it this weekend & wanted to have a mortgage arrangement in principle agreed upfront so we could make an offer on the spot if we like it. The complication is that the property comes with 3 holiday lets on the grounds.

Our mortgage broker said we'll need a commercial mortgage, but after speaking to a specialist commercial mortgage broker, we're completely confused about how anyone ever buys this sort of property! The issue appears to be that we want to live in the main house & rent out the cottages. So we don't fall strictly into residential mortgage territory, but also not fully into commercial mortgage territory.

One suggestion he had was that we find out how much income we could generate if the main house was rented out & get a commercial mortgage based on that income plus the income from the holiday cottages. The issue there is that we don't want to rent the house out, we want to live in it, which would be a breach of contract.

The other suggestion he had was that if the cottages are on the same title deeds as the house (currently waiting to find that out), then if the vendors were agreeable, they could apply to split the deeds so we could get a commercial mortgage on the cottages & a residential mortgage on the main house. This is fraught with risks though - the Land Registry might say no, the vendors may not want to do it, or there may not be separate access to the cottages etc.

We have a decent deposit, are both working full time & won't be relying on the holiday cottage income to fund the mortgage; so I'm really confused about why this is such a complicated situation.

Does anyone have any advice or have had a similar experience?

Many thanks.

Loup321
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Re: Advice about mortgage for house plus 3 holiday cottages

#396332

Postby Loup321 » March 17th, 2021, 7:44 am

I read this yesterday, but as no one has replied, and you want to achieve something by the weekend, I thought I would reply.

If you don't need the income from the holiday lets at all, can you get a straight-forward residential mortgage? You would be buying a house to live in that had some cottages in the grounds that you were not intending to let out at all. Then you would be in the position to make an offer this weekend if everything else is as you are hoping. Then when you have bought, you would have the breathing space to split the title, or get permission from your lender to let the cottages, or do something entirely different. In the meantime, letting family and friends use them free of charge would be fine and probably ensure they didn't fall into disrepair while you sorted out letting them out properly for the income.

I bought a flat with a residential mortgage, and lived there for 3 years. Then when I tried to sell, it wouldn't sell, so I ended up letting it out. The mortgage company were fine with that, transferring it to a "Let To Buy" mortgage (I needed to let it, in order to buy a new home to live in). I can't get the good deals, and am on the lenders standard rate plus 1.0%, but it was simple to understand and transfer. I think that Buy To Let mortgages are different enough that I will stick with what I have got rather than try to understand a different product, even if it could save me a couple of quid per year (which is doubtful in my situation at any rate).

iambic
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Re: Advice about mortgage for house plus 3 holiday cottages

#396357

Postby iambic » March 17th, 2021, 9:13 am

Loup321 wrote:I read this yesterday, but as no one has replied, and you want to achieve something by the weekend, I thought I would reply.

If you don't need the income from the holiday lets at all, can you get a straight-forward residential mortgage?


Thanks for your reply Loup. We did consider this option, but our broker spoke to several residential lenders who said they wouldn't be willing to help. He believes the issue is to do with the fact that the planning permission for the holiday cottages state they will be used for that purpose, so the lenders see it as too big a risk if we just tell them we don't intend to let them out (something to do with them potentially not being able to repossess if we default, but have someone staying/living in a cottage I think).

We spoke to the seller's estate agent yesterday who put us in touch with a mortgage broker who's local to the area we're looking to buy in (where holiday cottages are far more common than they are where we currently live). He confirmed that what we'd been told already was correct, but looking at the title deeds I *think* the properties may be separate already, which should mean we can get a commercial mortgage on them & a residential mortgage on the main property. He also said he could deal with both types of mortgage for us & knows of some solicitors who have done this sort of transaction in the past which should help simplify things slightly.

We felt slightly more positive after speaking to him but it still seems quite incredible that it's so complex, especially given the number of places we've seen on Rightmove advertising with a holiday let on the premises!

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Re: Advice about mortgage for house plus 3 holiday cottages

#396395

Postby Mike4 » March 17th, 2021, 11:36 am

iambic wrote:
Loup321 wrote:I read this yesterday, but as no one has replied, and you want to achieve something by the weekend, I thought I would reply.

If you don't need the income from the holiday lets at all, can you get a straight-forward residential mortgage?


Thanks for your reply Loup. We did consider this option, but our broker spoke to several residential lenders who said they wouldn't be willing to help. He believes the issue is to do with the fact that the planning permission for the holiday cottages state they will be used for that purpose, so the lenders see it as too big a risk if we just tell them we don't intend to let them out (something to do with them potentially not being able to repossess if we default, but have someone staying/living in a cottage I think).

We spoke to the seller's estate agent yesterday who put us in touch with a mortgage broker who's local to the area we're looking to buy in (where holiday cottages are far more common than they are where we currently live). He confirmed that what we'd been told already was correct, but looking at the title deeds I *think* the properties may be separate already, which should mean we can get a commercial mortgage on them & a residential mortgage on the main property. He also said he could deal with both types of mortgage for us & knows of some solicitors who have done this sort of transaction in the past which should help simplify things slightly.

We felt slightly more positive after speaking to him but it still seems quite incredible that it's so complex, especially given the number of places we've seen on Rightmove advertising with a holiday let on the premises!



I do feel you are running ahead of yourself here. I would play this by first of all visiting and viewing the property because no matter how it appears on paper or on a website, it won't seem the same when your see it for real, and you may not want to buy it once seen. There could be all manner of problems you don't know about like the motorway being built by the back fence, or the terrible general condition.

Once you have satisfied yourself you actually want it, make an offer subject to finance being arranged, then set about investigating the ways of raising the money. The vendor themselves is probably fully aware of the possible problems and may well be able to give you some suggestions, but discuss the apparent difficulties with them. In particular, ask them how they managed to fund their own purchase of the place! As you say, it may well already be split up into separate parcels at the LR in which case the whole thing gets much easier.

But take it a step at a time. You don't have to have all the financing in place in order to make an offer and be taken seriously.

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Re: Advice about mortgage for house plus 3 holiday cottages

#396422

Postby Lootman » March 17th, 2021, 12:56 pm

Mike4 wrote:The vendor themselves is probably fully aware of the possible problems and may well be able to give you some suggestions, but discuss the apparent difficulties with them. In particular, ask them how they managed to fund their own purchase of the place! As you say, it may well already be split up into separate parcels at the LR in which case the whole thing gets much easier.

If the seller already has a mortgage on the property, I wonder if that lender may be approached with the idea of somehow transferring that mortgage to the buyer?

Also, if the seller is having difficulty selling the property because it is hard to get a mortgage on it, might that seller wish to lubricate a sale by offering financing themselves? As a seller I considered doing that myself one time, although in the end it was not necessary as I found a cash buyer.

The one time I bought something like this, I gave up trying to get a normal mortgage, and managed to come up with the cash to buy outright. That involved a lot of scratching around, but it felt good not having to deal with lenders at all.

iambic
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Re: Advice about mortgage for house plus 3 holiday cottages

#396428

Postby iambic » March 17th, 2021, 1:07 pm

Mike4 wrote:I do feel you are running ahead of yourself here. I would play this by first of all visiting and viewing the property because no matter how it appears on paper or on a website, it won't seem the same when your see it for real, and you may not want to buy it once seen. There could be all manner of problems you don't know about like the motorway being built by the back fence, or the terrible general condition.

Once you have satisfied yourself you actually want it, make an offer subject to finance being arranged, then set about investigating the ways of raising the money. The vendor themselves is probably fully aware of the possible problems and may well be able to give you some suggestions, but discuss the apparent difficulties with them. In particular, ask them how they managed to fund their own purchase of the place! As you say, it may well already be split up into separate parcels at the LR in which case the whole thing gets much easier.

But take it a step at a time. You don't have to have all the financing in place in order to make an offer and be taken seriously.


Thanks Mike, you're probably right about us getting ahead of ourselves. It feels like the housing market is going a little crazy at the moment; we had 16 viewings of our house & 3 offers at the asking price from the first weekend of it being on the market, so we're just panicking slightly that we need to be completely ready to offer as it's the first place that looks so promising (at least on paper).

Not a bad shout asking the vendors about their current situation, thanks. I think from looking at the planning application history, that they renovated the cottages themselves & started letting them out, so possibly a slightly different situation, but certainly worth finding out. As you say, they should hopefully be aware of the complications, although the estate agent seemed a bit bemused by it all...!

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Re: Advice about mortgage for house plus 3 holiday cottages

#396430

Postby Mike4 » March 17th, 2021, 1:11 pm

Lootman wrote:
Mike4 wrote:The vendor themselves is probably fully aware of the possible problems and may well be able to give you some suggestions, but discuss the apparent difficulties with them. In particular, ask them how they managed to fund their own purchase of the place! As you say, it may well already be split up into separate parcels at the LR in which case the whole thing gets much easier.

If the seller already has a mortgage on the property, I wonder if that lender may be approached with the idea of somehow transferring that mortgage to the buyer?

Also, if the seller is having difficulty selling the property because it is hard to get a mortgage on it, might that seller wish to lubricate a sale by offering financing themselves? As a seller I considered doing that myself one time, although in the end it was not necessary as I found a cash buyer.

The one time I bought something like this, I gave up trying to get a normal mortgage, and managed to come up with the cash to buy outright. That involved a lot of scratching around, but it felt good not having to deal with lenders at all.


I'd second all of that. The OP also asked how does anybody ever get to buy a place like this when lenders are so wary. The answer is not all buyers need finance, they have the cash lying about. If this vendor paid cash then they will obviously not have a mortgage that needs settling on completion, and offering you a personal mortgage might actually look a really attractive proposition. The OP gets to buy the place without seemingly endless stupid questions from a bank, the wrong answer to any one of which could scupper the deal, and the vendor gets to earn a decent interest rate on his capital as the OP will be paying way over the savings rates the vendor would get if he puts the sale proceeds in the bank.

OTOH he might be selling to raise finance for some other business project in which case this is a non-starter. But getting to know and understand the circumstances of anyone you are doing business with often yields handsomely regardless, so make sure you get to meet the vendor personally whenever viewing if possible. Then you can start to build a relationship.

P.S. My first home was purchased with a vendor loan, so it can be done!

And yes deals with no lender involved usually go swimmingly smoothly compared to when you needed a mortgage.

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Re: Advice about mortgage for house plus 3 holiday cottages

#396431

Postby iambic » March 17th, 2021, 1:20 pm

Lootman wrote:If the seller already has a mortgage on the property, I wonder if that lender may be approached with the idea of somehow transferring that mortgage to the buyer?

Also, if the seller is having difficulty selling the property because it is hard to get a mortgage on it, might that seller wish to lubricate a sale by offering financing themselves? As a seller I considered doing that myself one time, although in the end it was not necessary as I found a cash buyer.

The one time I bought something like this, I gave up trying to get a normal mortgage, and managed to come up with the cash to buy outright. That involved a lot of scratching around, but it felt good not having to deal with lenders at all.


Thanks Lootman, some interesting ideas & assuming the viewing goes well & we decide to go for it, finding out the vendor's mortgage situation & who their lender is, is a good idea.

Although we unfortunately can't afford to buy the entire property outright, we think if the deeds are/can be split & the cottages are therefore valued separately from the main property, that we'd ideally be able to cover the entire cost of them outright. Removing the need for a commercial mortgage & just taking out a residential mortgage on the main property (assuming sufficient funds remain for a decent deposit towards that) seems the much simpler (& therefore the highly preferable) route!

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Re: Advice about mortgage for house plus 3 holiday cottages

#397005

Postby monabri » March 19th, 2021, 9:32 am

What will you do if you want to sell ( or your children want to sell) n years down the line?

iambic
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Re: Advice about mortgage for house plus 3 holiday cottages

#397098

Postby iambic » March 19th, 2021, 1:16 pm

monabri wrote:What will you do if you want to sell ( or your children want to sell) n years down the line?


The mortgage broker we're working with says it looks like the cottages have their own deeds, separate to those of the main property, so that should simplify things in terms of buying the place (fingers crossed...)

It sounds like any property with holiday cottages that have planning permission restricting their use to that purpose will have these same conditions for buying/selling. If/when we want to sell down the line, we'll already have the separated deeds so buyers can go down the same route we're having to. Either that, or we could apply to change the planning so the cottages just become part of the main property I guess.


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