Holiday Let Mortgages
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As staycations grow increasingly popular in the UK, many property investors are turning to holiday lets in addition to, or instead of, traditional buy-to-let properties. If you’re considering this type of investment but are unsure of how to finance it or get the best deal, read on.
In this article, we’ll look at the specialist area of holiday let finance, the criteria you’ll need to meet to get a holiday let mortgage, and why it’s important to seek advice from an experienced broker.
What type of mortgage do you need to buy a holiday let?
If you’re looking to buy a property to use as a holiday let, you’ll need a specific holiday let mortgage. This is a niche area of lending and differs from both buy-to-let mortgages and second home mortgages that would be used to buy a holiday home for personal use.
How does it differ from a buy-to-let mortgage?
Buy-to-Let mortgages are intended for rental properties offered to long-term secure tenants, with a minimum tenancy of 6-12 months. The loan is calculated based on the potential annual rental yield, rather than your personal income.
Holiday let mortgages are intended for short-term lets only, usually with a maximum tenancy of 31 days at a time, which makes the rental income more vulnerable to fluctuation. Lenders, therefore, need to do a far more complex projection of the potential rental income based on low, mid, and high season lettings and will typically look at your personal income alongside this.
How to get a holiday let mortgage
Your first step should be to speak to a broker who specialises in holiday let mortgages. Their expert advice could be the difference between securing the best deal and missing out.
Make an enquiry and we will match you with a holiday let mortgage specialist who can guide you through the following steps to full mortgage application:
- Downloading an optimising your credit reports
- Preparing a business plan and other essential paperwork
- Finding the right lender and filing the perfect mortgage application
Speak to an expert
Maximise your chance of mortgage approval with a specialist in holiday let mortgages
What kind of interest rate to expect
Take a look at our rates table below to get an idea of the deals currently available on holiday let mortgages.
Looking for more rates and deals?
We can match you with a mortgage broker who can provide you with up-to-date bespoke rates and deals from across the entire market.
Last updated September 2023
Please note that the above rates were accurate at the time of writing, but are always subject to change at the lender’s discretion. Speaking to a mortgage broker is the best way to find the most up-to-date deals.
Holiday Let Mortgage Calculator
Our holiday let mortgage calculator can show you how much your mortgage could cost you each month and overall. Simply enter the property value, deposit, anticipated monthly rent, interest rate, mortgage term and our calculator will do the rest.
Capital and repayment:
Loan to Value ratio (LTV):
Most lenders won't offer holiday let mortgages over a LTV of 80%.
Interest Cover Ratio (ICR):
Most lenders require rental income to be at least 125%-145% of the interest repayments for a holiday let mortgage.
Get started with a specialist buy-to-let broker to find out how much they could help you save on your monthly mortgage repayments.
Which lenders offer them?
There’s quite a lot of mortgage lenders available in this market, and this is likely to increase with the continued popularity of UK holiday rentals. At the moment, however, it remains a specialist area of lending served by building societies and smaller private lenders, many of which you won’t be able to access without a broker.
The criteria and flexibility of lenders vary dramatically from one to the next. For example, The Cumberland will lend between £75,000 and £2 million at up to 75% LTV per property, if you have a minimum income of £20,000, already own a residential property, and are able to provide satisfactory projected or proven rental income. If the ability to list on Airbnb is important to you, however, then Hodge Bank is happy to lend on this basis at up to £1 million at 75% LTV and £1.5 million at 60% LTV, with no personal income requirement. This lender also covers Scotland, which many others do not.
If you’re considering offering your residential home on Airbnb on an ad hoc basis, then the good news is that some lenders are beginning to warm to this as an option for the average homeowner who’s not looking to build a holiday lettings business. For example, Barclays customers with a standard residential mortgage have the option to let out their homes on Airbnb, so long as the property is not occupied by someone other than the owner for more than 90 days in any 12 calendar months, and no more than 30 days consecutively.
There are no interest rate increases associated with this facility. However, the borrower is obliged to ensure that there are no breaches of local authority regulations.
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Rules and eligibility criteria
As a fairly niche area of lending, with more risk involved for the lender than traditional buy-to-let properties, there are typically stricter lending criteria for holiday let mortgages.
Criteria vary between different lenders, but you’ll usually need to meet most or all of the following terms:
- Deposit requirement – Most lenders cap their lending at 75% LTV (loan to value) which means a deposit of at least 25% is typically required. A few lenders will consider 80% LTV, lowering the deposit requirement to 20%, however, this is still far higher than for a residential mortgage, which can be as low as 5%. It’s also possible that you’ll need to find up to 40% deposit, depending on the lender, and your personal circumstances.
- Homeowner status – Whilst you won’t necessarily need experience as a landlord, it’s not usually possible for first-time buyers to get a holiday let mortgage, so you’ll typically already need to be a homeowner.
- Minimum income – As the loan is based on uncertain rental income projections, most lenders prefer that you also have a personal income, to ensure you’ll be able to afford the repayments in low seasons and/or when the property is not bringing in as much rent. The minimum income requirement ranges from £10,000 to £40,000 depending on the lender, although there are a couple of holiday let mortgage providers who don’t have a minimum income requirement.
- Maximum loan amount – Many lenders impose a maximum loan value of between £400,000 and £750,000, although it’s possible to extend borrowing as far as £1.5 million with certain lenders. A minimum loan amount may also apply, and this is typically between £25,000 and £75,000, depending on the lender.
- Minimum projected rental income – Most lenders will expect the property to be able to achieve a gross rental income of around 145% of the monthly mortgage repayment, although this figure can be as low as 125% with some. It’s also common for lenders to insist upon approval of the anticipated rental prices by a reputable holiday letting agency.
- Age restrictions – Most mortgages have minimum and maximum age limits at application, however, the minimum age here tends to be 21, rather than 18, which is typically the minimum age for a residential mortgage. The upper age limit is similar to most other mortgage types and ranges between 75-85, depending on the lender.
- Property usage restrictions – Although many lenders allow you to enjoy the property for personal use for a specified number of days per year, you will not be able to use any property purchased with this type of mortgage as your main residence.
Many lenders mirror the HMRC definition of a holiday let, and will therefore expect that the property is available for let for at least 210 days per year and to actually be let for a minimum of 105 days per year. They may also require that you use an approved holiday letting agent to market the property on your behalf in order to meet these demands.
- Property type – There may be restrictions on the type of properties you can buy, for example, buildings of non-standard construction, such as thatched cottages, will be less appealing to some lenders. It’s also typically more difficult to qualify for a holiday let mortgage on any property that cannot easily be resold, so those that are purpose-built for holiday use are not usually easy to finance.
- Geographical restrictions – The location of your chosen holiday let can also impact the lender’s decision, and it can be more difficult to secure finance for purchases that are outside of the mainland UK, although some specialise in areas such as the Isle of Wight.
If you’re looking to buy in another country, you’ll need to look at a lender that offers overseas mortgages.
- Portfolio size – Some lenders set a limit on the maximum number of holiday lets that you can own at any given time, this typically ranges between 1 and 10, although there are lenders with no portfolio size limit.
Getting a holiday let mortgage in Scotland
The market is much smaller than it is for those buying in England and Wales, with only 10 lenders currently accepting Scotland-based holiday lets at the time of writing. Properties in the Scottish Highlands and outlying islands can be very difficult to secure, however, some lenders are more flexible about location than others.
Get matched with a holiday let mortgage broker
Holiday lets can certainly be a profitable investment, however, finding the right finance for them is not always straightforward, and seeking expert advice at the beginning of the process is highly recommended. The good news is, you don’t need to look for a broker with extensive experience in the holiday letting niche, as our free broker matching service will do that for you.
Simply call today on 0808 189 2301 or make an enquiry and we’ll put you in touch with a broker that can help you to secure the funds you need at the best rate possible for your circumstances. Your initial appointment will always be free, and you’re under absolutely no obligation.
Speak to a Holiday let expert
Maximise your chance of mortgage approval with a specialist in holiday let mortgages
If you already have a holiday home mortgage, some lenders may allow you to offer it for let for up to 90 days, however, you won’t be eligible for any tax benefits in these circumstances, as this will not be viewed as a holiday lettings business.
You could also potentially remortgage your home to release equity for either a larger deposit or, if you have a very high-value home, it may be possible to buy a holiday home outright with your equity.
Usually not, as both holiday lodges and static caravans tend to be located in holiday parks, which typically means that you won’t own the land that your property is on. Mortgages aren’t possible in these circumstances, as you won’t own the title as a property owner with HM Land Registry. It may be possible to get a secured loan to purchase a lodge or static caravan, however.
If the lodge is a stand-alone structure, perhaps a log cabin in the woods, for example, it may be possible to use a holiday let mortgage, although the majority of lenders in this niche shy away from non-standard construction properties.
No, it’s not possible to borrow 100% of the value of a holiday let property. There may be lenders willing to look at other assets of value if you are unable to provide the minimum 20-25% deposit, however, so it’s worth speaking to a specialist broker.
You can, although it’s not necessary to do this if your sole purpose is to take advantage of tax benefits, so speak to a tax adviser before you make this decision.
There are lenders that accept existing trading limited companies, however, the majority will prefer that you have a separate SPV (special purpose vehicle) to manage your property portfolio. Some lenders will consider newly formed SPVs if you don’t have an existing portfolio.
If you’re planning to offer your holiday let for more than 140 days per year then it’s possible that you will be able to take out a commercial mortgage to purchase it either as an individual, a partnership, or a limited company. The rates are typically higher than if you opt for a non-commercial product, however.
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