Case Study: Residential Mortgage with Holiday Lets on Site

Introduction

We helped a family secure a residential mortgage to purchase a £1.1 million property in Devon that included a main house and four separate holiday lets.

Our customers wanted to live in the main house while renting out the holiday barns to generate additional income. However, having five residential units on a single title made finding a suitable mortgage lender more complicated.

After reviewing the property and discussing the circumstances with Handelsbanken, we secured a 30-year residential repayment mortgage. Importantly, the lender was able to assess affordability using our customers’ existing earned income without relying on the projected holiday let income.

The mortgage allowed our customers to complete their purchase and proceed with their plans for the property.

The Scenario

Our customers were relocating to Devon to purchase a property valued at approximately £1.1 million.

The property consisted of a main residential house and four separate barns that could be used as holiday accommodation.

Their intention was to live in the main house as their primary residence while letting the barns to short-term guests through platforms such as Airbnb.

They anticipated that the holiday accommodation could generate approximately £80,000 in annual rental income.

However, the income from the holiday lets was not essential to their ability to afford the mortgage.

Both customers had established earnings and worked from home, meaning their employment arrangements could continue following the relocation.

Their preference was to arrange a standard residential repayment mortgage rather than commercial property finance.

This made lender selection particularly important, as the property was not a straightforward residential purchase.

The Challenge

The main difficulty was finding a lender willing to provide a residential mortgage on a property containing several separate dwellings, four of which would be used for holiday letting.

Although our customers intended to occupy the main house, the additional accommodation created complications when assessing the property as mortgage security.

Five Residential Units on One Title

The main house and four holiday barns were all held under a single property title.

Many residential mortgage lenders have restrictions on properties containing multiple self-contained units, particularly where some are used to generate rental income.

The presence of four holiday lets meant the property could fall outside the standard residential lending criteria of some lenders.

We needed to find a lender prepared to consider the entire property rather than focusing only on the main house.

Residential Use Alongside Holiday Letting

Our customers wanted the property to be their family home, but they also intended to operate the barns as holiday accommodation.

This combination of owner-occupation and income-generating accommodation was an important consideration.

Some lenders may regard a property with several holiday lets as having a commercial element, even where the borrower lives in the main house.

Our customers wanted to avoid a commercial mortgage if a suitable residential option was available.

Affordability Without Holiday Let Income

Although the barns had the potential to generate significant rental income, the proposed earnings were forecasts rather than established income.

Our customers’ existing earned income was sufficient to support the mortgage without including the projected holiday letting income.

This was an important factor because it meant the application did not depend on the lender accepting an estimate of future bookings.

Relocating to Devon

Our customers were moving approximately three hours away from their previous location.

Lenders may want to understand how a significant relocation affects a borrower’s employment and income.

In this case, both customers worked from home, which meant the move would not prevent them from continuing their existing employment arrangements.

We needed to explain this clearly as part of the lender discussions.

What We Did

We reviewed the property arrangements and our customers’ financial position to establish which lenders might be prepared to consider the application.

The main issue was the nature of the property rather than our customers’ ability to afford the borrowing.

We therefore focused on lenders able to take an individual view of properties with more than one residential unit.

After comparing suitable lenders, we approached Handelsbanken to discuss the proposed purchase.

We explained that our customers intended to occupy the main house as their primary residence, with the four barns used for short-term holiday accommodation.

We also made it clear that the customers’ existing earnings were sufficient to support the mortgage repayments without relying on projected holiday let income.

This distinction was important when presenting the application.

Rather than asking the lender to assess affordability using income from a holiday letting business that had not yet started operating, we demonstrated that the mortgage was affordable based on the customers’ established earnings.

We also explained their relocation plans, confirming that both customers worked from home and could maintain their employment following the move.

Handelsbanken was prepared to consider the unusual property arrangement and the customers’ overall financial circumstances.

Following its assessment, the lender agreed to provide a residential mortgage.

The Solution

We secured a 30-year capital repayment mortgage with Handelsbanken on a residential basis.

The agreed mortgage included the following features:

• Lender: Handelsbanken
• Property value: Approximately £1.1 million
• Property type: Main residence with four holiday barns
• Mortgage type: Residential repayment mortgage
• Mortgage term: 30 years
• Affordability: Assessed using existing earned income without relying on projected holiday let income

This addressed our customers’ main requirement of financing the property as their family home while retaining the ability to let the additional accommodation.

It also avoided the need to arrange commercial mortgage finance for the purchase.

The 30-year repayment term meant the mortgage balance would reduce through the scheduled monthly payments, assuming payments were maintained in accordance with the mortgage terms.

Why This Solution Worked

Handelsbanken was suitable because it was prepared to assess the property and our customers’ circumstances together rather than excluding the application solely because of the holiday lets.

The customers’ existing income was a significant factor.

They did not need the anticipated rental income from the barns to demonstrate affordability, which reduced the lender’s reliance on future business performance.

Their employment arrangements also supported the proposed relocation, as both customers could continue working from home.

Importantly, the lender was comfortable considering the main residence and holiday accommodation together under a residential mortgage arrangement.

The combination of established earned income, a clear intended use for the property and a lender prepared to assess an unusual security enabled the application to proceed.

The Result

Handelsbanken agreed to provide a 30-year residential repayment mortgage, and our customers successfully completed the purchase of their new home in Devon.

They were able to move into the main house while retaining the four barns for holiday letting.

The additional accommodation subsequently generated rental income, helping to support the overall finances of the property.

The mortgage met their original requirement of arranging residential finance for a property that also included income-generating holiday accommodation.

Our customers were able to proceed with their relocation and establish their new home without needing to use a commercial mortgage.

What This Case Shows

Buying a property with separate holiday accommodation does not automatically mean a commercial mortgage is required.

However, the way the property is arranged can significantly affect which lenders are willing to consider it.

Where a main residence shares a title with several holiday lets, lenders may assess the number of dwellings, their intended use, the property’s overall suitability as security and the borrower’s financial position.

This case also demonstrates the importance of distinguishing between established personal income and projected holiday letting income.

Our customers could afford the borrowing without relying on the expected rental income, which was an important part of Handelsbanken’s assessment.

For someone purchasing a home with holiday cottages, annexes or additional accommodation, checking lender criteria before making an application can help identify whether residential mortgage finance may be available.

Looking for a Mortgage on a Property with Holiday Lets?

If you are purchasing a family home with holiday cottages, annexes or other rental accommodation on the same title, Kerr & Watson can help review your mortgage options.

We work with lenders that may consider properties outside standard residential mortgage criteria, including those with additional dwellings or mixed residential and holiday letting use.

Contact Kerr & Watson to discuss your property and find out which lenders may be prepared to consider it.