Serviced Apartment Mortgage
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Serviced Apartment Mortgage
Sam Bull explains what’s involved in finding mortgages for serviced apartments.
What is a serviced apartment or accommodation? Do you have any examples?
A serviced apartment refers to a fully furnished living space that offers guests a range of amenities and services, all included within the rental costs.
You can usually rent serviced apartments from one night to several months at a time. They have similar facilities to a hotel – like a laundry service, cleaning, access to a gym or potentially a concierge service. That’s all included within a self-catering setup.
Typically serviced apartments come with a kitchen, bedroom, bathroom and the internet and utilities are included within the rent.
What type of mortgage do you need for serviced accommodation? How does this differ from a holiday let mortgage or Buy to Let mortgage?
To start with, you will need to secure a commercial mortgage to finance serviced accommodation. A conventional Buy to Let mortgage won’t be suitable.
Standard Buy to Let mortgages are intended for properties that are going to be let out for at least six months at a time on shorthold tenancy agreement. With serviced accommodation, there can be limits on the maximum duration that your property can be let to the same person.
Therefore, you wouldn’t be able to have a long term let agreement – and that makes it different from a conventional Buy to Let mortgage.
Serviced apartment mortgages are also different to holiday let finance. An apartment may be let for just a few days up to a few months, whereas holiday lets are traditionally residential properties that are let to holiday makers for one or two weeks at a time. Holiday properties also don’t usually benefit from the additional services offered by the serviced accommodation.
How much can I borrow and how much deposit do I need for a serviced apartment mortgage?
You can typically borrow up to 75% loan to value when securing a service department mortgage – so you’d need a minimum of a 25% deposit. That’s similar to a conventional Buy to Let mortgage.
How much you can borrow will be similar to a Buy to Let mortgage – it depends on the rent that the property is going to achieve. There’s a standard rental calculation that mortgage lenders do based on the anticipated rental income that the property will achieve, and this can vary by lender.
So the amount you can borrow will be property specific, and that’s where you’d need to speak to a broker. We’ll run through all the figures to tell you how much you could borrow on any particular property that you’re looking at.
What are the mortgage requirements for serviced accommodation in England?
You will need to check with your local authority. First of all, see if you’re going to need planning permission to change a residential property into serviced accommodation.
Some councils will give you a maximum number of days per year that you can rent the property out on a short term let basis. That might significantly reduce your rental income over the year.
For example, landlords in Greater London can only rent out a property on a short term let basis for 90 days of the year. You also need to make sure that your serviced accommodation is adequately insured. You’d need to get a specific policy tailored to the serviced apartment that you’re looking to buy.
Are mortgages in serviced apartments more expensive? What costs are involved?
Mortgages on serviced accommodation or serviced apartments are a type of commercial mortgage, so they will be more expensive than a standard residential or Buy to Let deal.
That makes it even more important to speak to your mortgage broker. We will do the usual shopping around to make sure that you are getting the most competitive product available.
Do you pay stamp duty on a serviced apartment?
Yes. HMRC states that serviced apartments are dwellings, so you will need to pay stamp duty land tax. As it’s an investment property, the 3% stamp duty surcharge will also apply.
Do you have to pay council tax on serviced apartments?
The landlord will be liable for the council tax and the guests or tenants will expect all bills to be included in the rent. They’d expect council tax to be covered within their normal monthly payment.
Speak To an Expert
Everyone’s different. You might be self-employed. You might have some credit history issues – whatever your situation, we will find the most suitable product available to you from across the whole market.
How do I apply for and get a mortgage on a serviced apartment?
Serviced apartment mortgages are specialist types of commercial mortgages so you will need to speak with a mortgage broker like JB Mortgages. We will do the initial fact find and get all the client information.
Then, we’ll be able to recommend the cheapest product that you qualify for. We’ll arrange all the paperwork and application forms on your behalf.
Is renting out serviced accommodation legal?
Yes, serviced accommodation is legal just as long as you have the relevant and permissions from your local authority. They will tell you if you need to apply for planning permission. You just need to follow their guidelines.
Can I apply for a mortgage on a service department with bad credit?
If you have bad credit and you’re looking to secure a serviced apartment mortgage, we will be able to help. We would request a copy of your credit report to review the extent of your bad credit, and then we’d be able to recommend a suitable mortgage lender who’s comfortable with your circumstances.
What are the advantages and disadvantages of getting a mortgage on serviced accommodation?
Buying property as serviced accommodation is a fast growing sector in the UK housing market. If you do your research and locate a property in the right area, you can benefit from extremely high rental yields. These properties have much greater investment potential than standard Buy to Let – so that’s the main benefit.
The advantage to the tenants is that they pay their rent and everything else is included – utilities, council tax and all the added extras. As a landlord, you will need to make sure that the rental income is going to cover those extra costs.
Your research is therefore very important. Run the numbers carefully, and make sure that the property you’re going to buy is going to cover everything. The last thing you want is a property that’s not going to make the profit that you would expect.
How can a mortgage broker help?
This is a very specialist product, and most high street mortgage lenders are not going to have any appetite to lend on these types of properties. As a mortgage broker we work with the specialist lenders that do lend on these types of properties, day in, day out.
We will make sure that you are getting the best deal and not wasting time applying to lenders who won’t accept these types of houses or flats.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages.