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Holiday let mortgages

If you’re looking to invest in holiday property, a standard buy-to-let mortgage won’t be suitable. You’ll need a specific holiday let mortgage if you plan to rent a property to multiple short-term occupants throughout the year, rather than on an assured tenancy. Our guide to holiday let mortgages explains what they are, how they differ to other mortgages and how to get one.
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Mortgages for holiday lets. With the right mortgage you could buy a stone cottage on a pretty country road like this one. Perfect to let out to holiday makers or on AirBNB

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What is a holiday let mortgage?

A holiday let mortgage is designed for people who want to let out holiday accommodation for profit. This is different to buying a holiday home for personal use, as a second-home mortgage would usually be used for that purpose. Although a holiday let mortgage usually also allows the owner(s) to stay at the property for a certain number of days per year.

They also differ from standard buy-to-let mortgages, which only allow properties to be rented on a short-term tenancy basis of a minimum term of six months to a year. With holiday lets you will typically have seasonal rentals and longer periods of vacancy than a buy-to-let property - although you can typically charge much higher rent for a holiday let.

A holiday home, therefore, has the potential to make more money overall than a standard residential rental property. However, because of the fluctuation between seasons lenders are a bit more cautious when calculating loans for this purpose. They will typically use the average of your weekly achievable rent across low, medium and high seasons. 

It’s important to note that holiday let mortgages can only be used for holiday lets in the UK, so if you’re looking to invest in holiday rental property elsewhere, you’ll need an overseas mortgage. 

This type of mortgage is usually, but not exclusively, taken on an interest-only basis, and holiday let mortgage rates are usually higher than traditional buy-to-let rates.

Are you eligible for a holiday let mortgage?

The criteria are generally stricter for holiday let mortgages than buy-to-let mortgages, as they are considered to be more risky due to the short term and seasonal letting pattern. As with any other mortgage, criteria will also vary between lenders, but will usually include:

  • Most lenders require applicants to be homeowners

  • A minimum of 25%-30% deposit, as the maximum LTV (loan to value) is usually 70-75%

  • There is often a loan cap of around £500,000 - although you may be able to borrow more at a lower LTV with some lenders

  • There is usually a minimum personal income requirement of £25-£40,000

  • Any property offered on a holiday rental basis must be fully furnished

  • The property will usually need to be able to generate a rental income equal to 125-145% of the monthly repayments

  • Most lenders will limit the number of holiday let properties you can have

  • Most lenders will limit the number of days per year you’re able to stay at the property yourself

  • Lenders may also expect the property to meet certain requirements, such as being in an area with tourist demand, desirably decorated and marketed, and not a mobile home or caravan

  • Some lenders also insist that the buyer has insurance in place to cover the cost of cancelled holidays and low season

Additional holiday let requirements in Scotland

The Scottish Government introduced a licensing regime for short-term lets in Scotland in 2022. Any landlords wishing to rent out a holiday property will be bound by this legislation.

This means that those taking out a holiday let mortgage in Scotland will need to consider the additional cost of obtaining a short-term let licence. Not having one could constitute a criminal offence, so seeking legal advice about whether or not you’ll need one is recommended.

What are the tax implications of a holiday let mortgage?

One of the major benefits to a holiday home compared to a normal residential buy-to-let property, is that you are able to deduct the associated costs of being a landlord, such as mortgage interest and maintenance, from your taxable income. This is no longer possible for buy-to-let landlords who are higher-rate taxpayers. 

To be eligible for this taxable deduction, your holiday let must be fully furnished and available to let for at least 210 days per year, and actually let for 105 of those days.

Additional stamp duty

If you’re already a homeowner, however, which most lenders will insist that you are to get a holiday let mortgage, you will be liable for the 3% stamp duty surcharge for an additional property. 

This charge counts for every property owned over and above your own personal residential home, including personal holiday homes, holiday lets and residential buy-to-let properties that you own.

Other tax liabilities of a holiday let

  • You’ll pay income tax on the rental income earned from letting out your holiday home

  • Capital gains tax would be payable on any profit that you made from the future sale of a holiday let

  • A holiday let will form part of your estate for inheritance tax purposes

Are holiday let mortgages more expensive?

Holiday lets are certainly more expensive than residential purchase in terms of interest rates, as they are classed as a commercial property. They are often also more expensive than traditional buy-to-let investment properties, given greater uncertainty in rental potential. 

The deposit requirement and mortgage set up fees are also larger, due to the risk and commercial nature of this type of purchase. There are also fewer lenders that provide holiday let mortgages, which means there is less competition. 

What are the advantages and disadvantages of a holiday let mortgage?

  • The rental income can be greater than an assured tenancy buy-to-let rental - especially in high season

  • You can usually use the property yourself for a certain number of days per year

  • You can claim tax relief on the costs of being a landlord

  • Property prices are likely to be higher in popular tourist locations, which could limit your affordability

  • Interest rates on holiday let mortgages are typically higher

  • You’ll have to pay 3% stamp duty surcharge if you already own another property

  • There is a greater likelihood that the property will remain empty for long periods, especially during low season

  • Only available for UK properties

How can you get a holiday let mortgage?

To find the best holiday let mortgages available to you, speaking to a mortgage broker with knowledge in this niche is recommended. They will be able to compare holiday let mortgages across the market to find the best deal available for your circumstances. 

It’s also worth noting that as holiday let mortgages are not regulated by the FCA (Financial Conduct Authority), advice from a mortgage broker (who must be regulated) offers greater protection versus going directly to a lender.

Overall, the best holiday let mortgage rates are usually available to borrowers with a large deposit, strong credit score, and who are able to provide a well-researched projection of earnings. Lenders will need this to show that the income potential will cover the mortgage repayments at their desired rate (usually between 125% and 145% of the monthly payment).

Holiday let mortgages FAQ