Can you get a mortgage on a holiday lodge?

19/05/2023

Can you get a mortgage on a holiday lodge

Typically, securing a mortgage on a holiday lodge is challenging, as finance of this type is usually classed as “non-standard” borrowing. If you’re interested in purchasing a holiday lodge, it’s important to understand that mortgages on this type of property are very limited – far moreso than a typical brick-and-mortar home.

As holiday lodges are considered non-traditional properties, lenders typically view them as higher-risk investments. They may also have more stringent eligibility criteria and stricter lending terms in place.

However, the good news is that there are alternative finance options available.

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The types of mortgages available for lodges
Why you might not get a mortgage
Alternative finance options
How much you can borrow
What if you have a bad credit score?
Length of mortgages

What type of mortgages are available for holiday lodges?

There are several mortgage products that may be available to you. It’s essential to understand the differences between each of them and choose one that best suits your needs and financial situation:

Holiday Lodge Mortgages: Some lenders offer specialist mortgages specifically designed for holiday lodges. These mortgages come with specific terms and conditions, such as requiring a higher deposit or a shorter mortgage term. It’s important to compare the interest rates and fees of different policies to find the one that best fits your needs.

Residential Mortgages: If you are using your lodge as a permanent residence, you may be able to secure a residential mortgage. However, you may need to demonstrate that the property meets certain building and safety standards.

Holiday Let Mortgages: If you plan to rent out your holiday lodge as an investment property, a holiday let mortgage may be an option. However, it is likely you’ll need to put down a higher deposit than a residential mortgage. You will also need to provide evidence of potential rental income to be considered.

Equity Release: If you already own a property and are looking to use the equity to purchase a holiday lodge, you may want to consider an equity release mortgage as a form of financing.

Be sure to consider your options carefully and to work with a lender with extensive experience in financing holiday lodges.

Mortgage for holiday lodge

Why can’t I get a mortgage on a lodge?

Often, it’s not possible to get a mortgage on a lodge. Here are some of the most common reasons as to why that may be:

Leasehold restrictions: Many holiday lodges are situated on leased land, which means that the land and property are owned by a third party. Some mortgage lenders may not be willing to offer a mortgage on a leasehold property, particularly if the lease is for a relatively short period of time.

Non-standard construction: Some holiday lodges are constructed using non-standard materials or methods, such as timber frames, which can make them more difficult to value and insure. As such, some mortgage lenders may be hesitant to offer a mortgage.

Limited usage: As holiday lodges can be used as a holiday home, banks may be less willing to lend as they are not in-full attendance. The limited usage may be viewed as a risky investment for lenders, with concerns about the borrower’s ability to repay the loan.

Limited resale value: Holiday lodges can be difficult to sell, particularly in a slow market. This can be a worry for mortgage lenders, who may be concerned about their ability to recoup their investment if the borrower defaults on the loan.

What options are available if I can’t get a mortgage on a holiday lodge?

If you’re unable to secure a mortgage for a holiday lodge, the alternative is to take out a personal loan. Companies such as Arkle Finance offer a service whereby the loan can be used to cover the cost of purchasing the lodge outright or as a deposit for a leasehold purchase. They often have shorter repayment terms and higher interest rates than mortgages, so it’s important to consider the overall cost of borrowing.

A hire purchase agreement is another possibility to explore. This financing option involves making regular payments to a lender over a set period until you own the lodge outright. It can be beneficial for those who want to spread the cost of their holiday lodge over a longer period. However, like personal loans, hire purchase agreements may come with higher interest rates and fees than mortgages.

One top tip is to thoroughly read through the specific eligibility criteria and check the interest rates of available options before committing to any financing agreement.

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How much can I borrow for a holiday lodge mortgage?

The amount that you are eligible to borrow for a holiday lodge mortgage will depend on a combination of factors, including your deposit, credit score, and the value of the lodge you’re planning to purchase.

Lenders will also investigate your income and expenses by using affordability calculations to ensure that you can comfortably keep up with the monthly mortgage payments. They may also take into account other debts or financial commitments you have to determine your affordability.

One key influential factor is the loan-to-value (LTV) ratio, which is the percentage of the property value that you are borrowing. For example, if you are purchasing a holiday lodge worth £100,000 and have a deposit of £20,000, you would need to borrow £80,000. This would give you an LTV ratio of 80%. Most lenders will have a maximum LTV ratio that they are willing to lend against holiday lodges. Generally, this is around 80%, although some lenders may offer higher or lower ratios depending on several factors, such as the lodge type and its location.

Can I get a mortgage on a lodge if I have a bad credit score

If you’re worried that your bad credit score might prevent you from securing a mortgage for a lodge, don’t lose hope just yet.

You may well need to provide extra documentation, such as proof of income or a larger deposit, and be prepared to accept less favourable mortgage terms, like a higher interest rate. Keep in mind that every lender has its own unique criteria for assessing mortgage applications. In this case, it would be advisable to work with a mortgage broker who can help you find a lender who is more willing to accept a buyer with a bad credit history.

Improving your credit score before applying for a mortgage is a smart move. Firstly, aim to pay off any outstanding debts to improve your credit utilisation ratio and show lenders that you are taking full responsibility of your finances.

Also, be sure to check that your credit report is 100% accurate. Even the smallest error could drastically have a negative impact. You can request a free copy of your credit report from credit reporting agencies and dispute any errors you spot.

Holiday Lodge in the winter Option to Buy

How long can I take out a mortgage for a holiday lodge?

The length of mortgage terms on holiday lodges varies and is dependent on the lender and their available mortgage products. The terms offered for holiday lodge mortgages typically range from 5 to 30 years. However, it’s essential to remember that the length of the mortgage term will affect the interest paid over the loan’s lifespan.

Longer mortgage terms aren’t common, and may result in lower monthly payments, but you’ll end up paying more in interest over the life of the loan. On the other hand, a shorter mortgage term comes with higher monthly payments, but results in paying less interest overall and the ability to pay off the mortgage earlier.

It’s worth noting that lenders may have restrictions on the length of a holiday lodge mortgage, depending on factors such as the age of the property and its location. Be sure to check with your lender to see what mortgage terms are available.

Secure finance on your dream lodge today

While securing a mortgage for a holiday lodge comes with its challenges, it is possible to obtain one (or alternative means of finance) with the right preparation and approach.

It’s important to research lenders and their mortgage products, as well as taking steps to improve your credit score if necessary. Working with a specialist holiday lodge mortgage broker can also provide valuable assistance in finding lenders who are most likely to approve your application.