Finance for Serviced Accommodation: A Comprehensive Guide
Serviced accommodation has become a lucrative investment strategy, offering short-term rental income with higher yields than traditional buy-to-let properties. However, financing these properties differs from standard residential mortgages, requiring specialist funding solutions. This guide explores the key finance options available and what investors need to consider.
Key Finance Options for Serviced Accommodation
1. Commercial Mortgages
Commercial mortgages are an ideal choice for investors purchasing serviced accommodation properties. Lenders assess the property’s income potential rather than just personal affordability. These loans typically require higher deposits (25-40%) and may come with slightly higher interest rates.
2. Buy-to-Let Mortgages (with Lender Approval)
Some buy-to-let lenders allow short-term lets, but many prohibit serviced accommodation under their standard mortgage terms. If you plan to use a BTL mortgage, ensure the lender permits this type of use, or consider switching to a specialist lender that caters to short-term rentals.
3. Bridging Loans
Bridging finance is a short-term loan solution, often used for property refurbishment or securing a deal quickly. These loans typically have higher interest rates but provide fast access to capital, making them useful for investors looking to renovate or convert properties into serviced accommodation.
4. Holiday Let Mortgages
A holiday let mortgage is designed for properties rented out on a short-term basis, such as Airbnb or serviced apartments. These mortgages require lenders to assess rental income over a 12-month period rather than relying on a standard AST (Assured Shorthold Tenancy) agreement.
5. Development Finance
For those developing serviced accommodation from scratch or converting existing properties, development finance provides staged funding based on project milestones. This type of loan is beneficial for investors building or significantly refurbishing properties for short-term rental.
Key Considerations When Financing Serviced Accommodation
Interest Rates & Loan Terms
Lenders perceive serviced accommodation as higher risk than traditional rentals, which can result in higher interest rates. Loan terms typically range from 3 to 25 years, depending on the financing product.
Deposit Requirements
Most lenders require a deposit of at least 25-40%, but this varies based on the property’s location, income potential, and the investor’s financial history.
Rental Income Assessment
Unlike standard BTL mortgages, many lenders will assess the projected income based on occupancy rates and seasonal variations. Providing a strong business plan with rental projections can improve approval chances.
Regulatory Compliance
Different areas have varying regulations regarding short-term lets, including planning permissions and licensing. Ensure compliance with local laws to avoid financing issues.
How to Improve Your Chances of Securing Finance
- Have a Solid Business Plan: Lenders favor investors who can demonstrate profitability with detailed financial projections.
- Maintain a Good Credit Score: Strong credit history improves your chances of approval and helps secure better interest rates.
- Show Proven Rental Demand: Use market research and comparable properties to validate expected rental income.
- Work with a Mortgage Broker: Specialist brokers have access to lenders who understand serviced accommodation finance and can provide tailored advice.
Final Thoughts
Securing finance for serviced accommodation requires a strategic approach, as traditional mortgage lenders may not always be suitable. By exploring specialist lenders, preparing a strong financial case, and ensuring regulatory compliance, investors can successfully fund their serviced accommodation ventures and maximize their returns.
For expert advice on financing your serviced accommodation, contact a specialist mortgage broker or financial advisor today.