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A Guide to Holiday Let Mortgages

Is it possible to get a holiday home with a buy to let mortgage? Answers here.

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By Pete Mugleston   Mortgage Advisor

Last updated: 23rd November 2018

Can I get a buy to let mortgage for a holiday home?

If you’re thinking about buying a property for holiday let, then you’ll need a specific mortgage.

The advisors we work with can give you the right advice and answer all of your questions and more about the advantages, disadvantages, and lending criteria of holiday buy to let mortgages.

In this article we’ll cover:

We answer questions about what interest rates are available, how much deposit you need, and the one on everyone’s lips … how profitable can buy to let holiday homes be?

Holiday let lending criteria

A holiday let mortgage can provide you and your family with the perfect getaway, with the possibility of an income when you’re not using it.

There are a number of holiday let mortgage providers with vastly different criteria to be met, should you consider a property as a buy to ‘holiday let’ investment.

Can I get a holiday let using a normal mortgage?

A holiday let mortgage in the UK is similar to a standard mortgage, but not the same, and you would usually not be permitted to use a standard residential mortgage to rent out the property as a holiday let.

If you already have a mortgage on your home, then the holiday let mortgage it may be deemed to be a ‘second mortgage’ if you plan on living in it half the time and not letting it out. If this is the case there will be restrictions on who can/can’t stay there, how often you are there, and the loan to value lenders are willing to consider.

If you intend to use the holiday home exclusively and don’t intend to let it out, some lenders will still allow lettings up to 18 weeks a year. In this case, it may be possible to use a standard mortgage.

 Can I use a ‘buy to let’ mortgage for a holiday let?

In almost all cases, you can’t use a standard ‘buy to let’ mortgage, as a ‘buy to holiday let mortgage” is usually treated as a business and let to temporary guests, whereas most Buy to let lenders require the property to be let to tenants on an assured tenancy agreement.

The right holiday let mortgage broker will assess your circumstances, will have access to the whole market, and have experience of regularly arranging holiday let mortgages. Make an enquiry and we will refer you to the expert be best placed to give you the right advice.

Do buy let holiday cottage mortgages have different criteria?

All lenders are different, but the  criteria for cottages is much the same to any other standard construction property, as long as it doesn’t have a thatched roof.

Do lenders have different criteria for holiday let mortgages in Scotland and Northern Ireland?

All lenders are different and will have different criteria depending on your circumstances, such as income, deposit and credit history.

This is why you should talk to one of the advisors we work with who are experts on holiday let mortgages in Scotland and Ireland.

Holiday let mortgage rates

Comparing the best holiday let mortgages can show higher rates than a standard mortgage because it is something of a niche market, with slightly more perceived risk – fewer lenders means less competition.

The rate you’ll qualify for depends on numerous factors, generally:

  • the amount of deposit (the more the better)
  • the rental income you expect
  • your credit history
  • your income and age
  • the property type (the more standard the better)
  • various other factors

Again, one of the mortgage advisors we work with can give you the right may be able to get you the best holiday let mortgage rates.

Holiday let interest only mortgages

Some lenders offer interest only holiday let mortgages and, depending on your circumstances, these products may be more suitable for you, and whether you are living in the property exclusively or letting it out will play a part.

If you’ll let out the property

In general, if you are letting the property and will be using a buy to holiday let mortgage, lenders will be happy to consider on an interest only basis as standard, with no real need for another repayment strategy (your plan to pay off the mortgage before the end of the term) than selling the property.

If the holiday home is on a second residential mortgage

If you are going to live in the property exclusively and use a standard second home residential mortgage, lenders are much more likely to want to see a viable repayment strategy (which may be selling the property, or another vehicle such as savings / investments / pension lump sums etc.).

How much deposit do I need for a holiday let?

When you buy a holiday let to run as a business, versus a holiday home to use yourself exclusively, deposits can vary. Typically most lenders will require 25% deposit if being let and at least 15% if exclusively for you to use. Some lenders are more flexible and can consider as little as 15% for a let property and 10% for a second home holiday let.

How much can I borrow on a Holiday let mortgage?

Although there are no specific Holiday let mortgage calculators, affordability varies depending on whether you plan to rent the property out as a business; or live in it exclusively.

Affordability if you are renting the property out

These mortgages tend to be arranged as a type of buy to let mortgage and are calculated based on the rental income of the property.

Now, if you plan to rent out the property, while your buy to let holiday business may experience very good income in the high season, this can be much lower at other times.

So, lenders tend to look at the actual rental income over the whole year to assess affordability. You’d of course need to bear this in mind for budgeting purposes, as the mortgage payments are likely to be consistent over the year!

Some holiday let mortgages lenders require that your net annual rental income be a minimum of 125% of the annual mortgage interest, (so for a mortgage payment of £500 a month, the rental income must be at least £625), and ranges up to 170% (£850) for specialist mortgages and lenders.

This can be different lender to lender and depending on whether you are a higher or lower rate tax payer, or whether the property is in a Ltd company wrapper.

If the rental is not enough to cover this, some lenders allow landlords to use their personal income to cover the shortfalls – this is known as ‘top slicing’. Lenders would almost always want the applicant to have their own personal income as well, some placing minimum limits of £20-30k a year, with others more having no minimum limit.

The real question is … could you afford the buy to let holiday mortgage if it was only let for a month? Or not let at all? All important considerations. So you can see why it’s important to get the best buy to holiday let mortgage.

Affordability if the holiday home is just for you

If you are living in the holiday home, mortgage affordability is calculated differently, and is based on your personal income and outgoings.

Most lenders will want to know you can afford the mortgage alongside any other mortgage, loan, credit card commitments, and lend to a limit of around 4x your annual income. Some lenders can lend up to 5x, and a handful up to 6x in the right circumstances.

Calculating holiday let mortgage affordability becomes a little more complex, when you are a professional landlord or self-employed in another capacity, as evidencing acceptable income can be more complex – as lenders all have different policy on acceptable trading style, time trading, accounting figures used etc.

The good news is there are lenders that specialise in holiday let mortgages for self-employed people, so make an enquiry and one of the experts will give you the right advice.

Where is the best place to get a holiday let?

You also need to consider a number of other factors, such as the best place to buy a holiday let, how popular the area is with visitors and who will look after the property when you are not there, are important issues that may affect where you buy.

The amount of income you can generate is dependent on your pricing policy, type of home, location, actual occupancy rate, seasonal demand and type of guests.

For example, if your net rent is £10,000 and the property cost £200,000, then the yield is 10,000/200,000 which equals 0.05 x 100 = 5% yield.

Something to consider is that the average occupancy is around 21 weeks, with more popular areas having an occupancy of around 24 weeks and a holiday home in the Lake District can be a whopping 40+ weeks.

Some of the most sought after features that will boost revenue are –

  • Weather
  • Location
  • Local amenities (Pubs, restaurants attractions etc.)
  • Open fire place
  • Swimming pool
  • Hot tub
  • Sea/water views
  • Beach within 5 miles
  • Internet
  • Dog friendly

Buy to let landlords move in on Airbnb

Before you buy a holiday home to let, a good tip would be to have a chat with a local holiday letting agent for their assessment of rents in the area; or go onto AirBNB to get a feel for the sort of rents people are asking for in a similar property.

Airbnb was founded in 2008 and has proven a boon to many landlords with buy to let holiday homes. The company operates an online booking service for people looking for short term holiday homes, cottages, apartments etc.

Putting your holiday buy to let on Airbnb could take a lot of the hassle out of marketing your buy to let or holiday let.

Obviously, the more popular the area, the more bookings you will receive, so where you’ll buy a holiday let in the UK is an important consideration.

Getting a mortgage on a unique/non-standard holiday let property

When it comes to the style and construction of the building, the holiday let mortgage criteria generally dictates that property is of standard construction; so that yurt or tree-house you have your eye on, probably won’t impress many holiday let mortgage lenders.

Standard construction tends to be brick built with a slate or tile roof, which if in a good state of repair will usually be approved by lenders no problem. There are also lenders considering concrete, timber or steel framed property and a whole number of variations that are generally assessed individually and is not until a valuer formally reviews the property that the buyer will know the likelihood of it being suitable for lending purposes.

If you want to get the best returns on your holiday home, you’ll need to run it like a real business; so you’ll have to market your home, look after your guests, keep the home clean and attend to any maintenance quickly, or have an agent/ someone run this for you of course.

Does the holiday let need to be furnished for a mortgage?

It’s also important to note that, if you’re looking for a mortgage on a holiday let business, then most lenders will require that it be a fully furnished holiday let.

Holiday let property tax

The ‘buy to let’ boom was primarily fuelled by the tax advantages offered to landlords, but now, government legislation to reduce these advantages has changed the market significantly. That said, for many, there are still considerable gains to be made.

Holiday let mortgage v buy to let

The good news is that for many people, these new laws do not affect holiday homes that qualify as Furnished Holiday Lets (FHLs), so your buy and let holiday cottage or home may still enjoy the original tax breaks, subject to certain criteria.

Bear in mind that for tax purposes there are quite strict criteria to be met. For instance, it must be available to let for at least 210 days a year and you’ll need to let it out for at least 105 days.

This means you could potentially claim expenses such as maintenance and your holiday let mortgage interest against rental income. You need to consult an accountant or tax advisor, who should be able to provide full details.

Remember, if the primary reason for buying a holiday home to let is for annual family holidays, then it also needs to be a place that you’d love to visit, time and time again without getting bored.

Speak to a holiday let mortgage expert

If you’d like to know more about holiday home mortgages, call us today on 0800 304 7880 and we’ll match you up with an advisor who’s an expert in every aspect of holiday let mortgages.

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 23rd November 2018
OnlineMortgageAdvisor 2018 ©

FCA disclaimer

The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

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