Serviced Accommodation Mortgages

A serviced accommodation mortgage is not to be confused with a holiday let where the lender may let you stay in the property for a short amount of time. A serviced accommodation mortgage is not to be used for your own personal use.

While it can achieve higher rental income the outgoings are significantly higher. When you purchase the property you will have to fully furnish it to make it attractive to potential guests. There is also more ongoing maintenance as the property has to be cleaned after each check out. 

Depending on the lender you will typically require:

Deposit: A higher deposit, usually around 20-25% of the properties value is usually required

Surplus rental income: of at least 125-145% of the mortgage payment to cover any rental voids

Credit History: A good credit history demonstrates your ability to manage debt responsibly.

The amount you can borrow with a serviced accommodation mortgage depends on several factors, including the potential rental income of the property, your own financial circumstances and the lending criteria of the specific lender you’re working with. Typically, lenders calculate the maximum loan amount based on a rent-to-mortgage ratio, ensuring that the potential rental income is sufficient to cover the mortgage repayments.

As a general guideline, lenders often require the rental income to be around 125% to 145% of the mortgage payments. This means that the monthly rental income should exceed the mortgage payment by a certain margin to account for potential vacancies, maintenance costs, and other expenses.

Additionally, lenders may consider your personal income, credit history, and existing financial commitments when determining how much you can borrow. They may also factor in the type of property you’re investing in and its location.

To get an accurate estimate of how much you can borrow we assess your individual situation and provide you with a clearer picture of your borrowing capacity based on their specific lending criteria.

Yes, using rental income to cover mortgage repayments is a key characteristic of a serviced accommodation mortgages.

Rent-to-Mortgage Ratio: Lenders usually require the potential rental income to exceed a certain percentage (often around 125% to 145%) of the mortgage payments. This ensures that even if there are periods of vacancy or unexpected expenses, the rental income should be sufficient to cover the mortgage.

Assessment of Affordability: When assessing your application, lenders calculate whether the rental income meets their required ratio compared to the mortgage payments. This assessment helps them determine if the property is likely to generate enough income to support the mortgage.

Property’s Rental Potential: The rental potential of the property, based on factors like location, property type, and local rental market conditions, plays a significant role in this assessment.

It’s important to note that while rental income is a primary consideration, lenders may still consider your personal income and financial situation when assessing your eligibility. Having a property management plan and considering potential expenses like maintenance and property management fees are essential for a successful property investment.

Ultimately, using rental income to cover mortgage repayments is a fundamental concept of investment mortgages, making them a distinct option for property investors seeking to generate income from their investment properties.

Applying for a serviced accommodation mortgage involves several steps that are similar to applying for other types of mortgages. Here’s a general overview of the process:

Initial Chat
Discuss your plans: Give us a call or email us to schedule a call to initially talk through your plans and what you are looking to do.

Documentation Gathering
Prepare documents: Once we’ve had a discussion and what you are looking to do seems feasible and we’ve provided an idea of product interest rates, we will email you our documents to complete and a list of documents to provide.

Research and Preparation
Research lenders: Once we have received our completed documents and requested documents, we will research lenders that offer serviced accommodation mortgages and provide you with the cheapest product options you and the property are eligible for.

Decision in Principle and Mortgage Application
Once a product has been selected e.g. a 2- or 5-year fix product, we will submit the Decision in Principle and Mortgage Application.

Underwriting and Approval
Underwriting process: The lender’s underwriting team will assess your application and verify the provided information.

Property Valuation
Valuation assessment: The lenders will value the property and assess its suitability considering factors like location, size and condition.

Rental Income Valuation
Rental assessment: The lender will also value the projected rental income of the Buy to Let property, considering the condition of the property, local rental market, and other factors.

Offer and Terms
Mortgage offer: If your application is approved, the lender will provide a formal mortgage offer outlining the terms, conditions, interest rates, and fees.

Legal and Regulatory Checks
Legal and regulatory review: Your solicitor or conveyancer will review the property’s legal title, ensuring there are no issues that could affect the mortgage or property ownership.

Completion
Legal: Your solicitor will coordinate the completion process. It’s important to note that the process can vary depending on the lender, your location, and individual circumstances. Working with a knowledgeable mortgage broker can streamline the process, ensure you meet all requirements, and help you find the best Portfolio Buy to Let mortgage for your investment goals.

We are highly experienced so do not hesitate to give us a call to talk through your plans.