We were approached by a new client who had recently completed the development of a property in Cornwall.
He required capital to fund a second nearby project and sought advice on the most appropriate category of finance.
We quickly assessed the case and began sourcing a suitable solution.
We secured funding via the refinance of the property onto a Holiday Let facility with a specialist lender.
Affordability was assessed based on projected seasonal rental yields (low, mid, and high). The facility was fixed for two years at £750k, against a £1m valuation. We opted for a two-year product to provide flexibility, as the client may wish to explore further capital-raising opportunities in future.
For this type of security, there are several financing routes available. Given the client’s intention to rent the property through an Airbnb-style arrangement, a Holiday Let facility was deemed most appropriate.
The Holiday Let mortgage market has grown steadily in recent years, but lender criteria for assessing affordability vary significantly. Many banks require borrowing to meet standard AST (Assured Shorthold Tenancy) rental levels, which often understate the property’s actual profitability. In this case, AST rental was not feasible, so our search focused on lenders who would consider seasonal rental income. Our pool of potential lenders was further narrowed as the asset was held within an SPV Limited Company.
Another complication arose from the purpose of the capital raise. While most buy-to-let lenders are comfortable with capital raising for portfolio leverage, many decline when the funds are intended for ground-up development due to the higher risk. Development finance could have been an alternative, but it would have required significantly more work, time, and cost. Therefore, a Holiday Let lender open to capital raising for development was the ideal fit.
We identified a suitable specialist buy-to-let lender with whom we had an excellent relationship. We presented a detailed business plan outlining the new development, including costs and the client’s relevant experience. Additionally, we obtained a rental appraisal from a reputable local letting agent confirming likely seasonal rental values. With all supporting information provided, the underwriter was satisfied and approved the case for offer.
Funding was secured at 6.84% with a 1.5% arrangement fee (added to the loan balance). Compared to other borrowing options, this represented strong value. The client is fixed for two years, with the flexibility to refinance should rates continue to fall. Work has now commenced on the new project, and we look forward to supporting the client again in future ventures.
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