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Holiday Let Mortgages

Confused whether you should invest in a holiday let? Read this guide to understand the intricacies of a holiday let mortgage.
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Have you set your sights on acquiring a beautiful property by the coastline but struggling to meet the costs? 

Holiday Let mortgages are specifically meant for homes you will let out to tourists for most of the year.

But the added advantage is that a lot of mortgage lenders offering Holiday let products will still allow you to use it for personal purposes for the remaining days when it is not rented out.

Read this guide to know how to invest in holiday let mortgages, what criteria to meet and how to generate a second income.

What Are Holiday Let Mortgages?

You will require a holiday let mortgage when you want to buy a property to rent it out multiple times throughout the year to holidaymakers.

Holiday Let Mortgages

This can act as a source of second income and even have special tax advantages, which makes them suitable for investment opportunities.

People who wish to enjoy their holiday home without letting it out will have to take out a second residential mortgage on the home. Such loans differ from holiday let mortgages.

For a lot of holiday let mortgages, you must be able to provide furnished accommodation for 210 days annually.

How Do Holiday Let Mortgages Work?

So, what about leisure? Can you still enjoy the holiday home for family visits?

Most lenders who offer Holiday Let products allow you to use a holiday home for personal visits as long as you meet the basic criteria of providing tourist accommodation for 210 days.

The goal while investing is to generate sufficient income for repaying the mortgage and turning a profit. 

This mortgage is similar to a buy-to-let mortgage as the rental income received will determine the amount you can borrow from the lender.

Most lenders will use an average of the high, mid and low seasons to calculate the average income received from the property throughout the year. 

How Are Holiday Let Mortgages Different From Buy-To-Let Mortgages?

It’s essential to meet all the conditions of the HMRC (Her Majesty’s Revenue And Customs) for your property to get accepted for holiday-let purposes.

Apart from being available for 210 days, you will have to let out the holiday home for 105 days annually.

Moreover, you cannot let out the property for longer than 31 days at a time because stays exceeding this time limit don’t count towards the 105 days. Most importantly, you cannot make special considerations for relatives or friends and offer them reduced rates.

But the biggest advantage of holiday-let mortgages compared to buy-to-let mortgages is that it’s possible to eliminate mortgage interest payments from rental income. This will help potentially lower tax bills.

Buy-to-let mortgages are most suited for long-term letting, and you cannot live in the property.

Is It Possible To Use A Buy-To-Let Mortgage For A Holiday Let Mortgage?

We have already pointed out the difference between the 2 mortgage types, so you can’t use buy-to-let mortgages for a holiday let.

The biggest disparity is that buy-to-let mortgages are long-term options, with the minimum tenancy period being 6 months, whereas you can rent a holiday home for even a few days.

Moreover, the operational method for these mortgages is different even though they both charge rental fees.

Most importantly, a holiday home owner and landlord have varying responsibilities since you can provide a holiday home for serviced accommodation, like a furnished hotel.

In some cases, the income from a holiday let is higher due to being able to charge per day for a stay rather than monthly.

On the flip side, occupancy for a holiday home will be less frequent, so buy-to-let mortgages can sometimes generate similar income.

Holiday Let Mortgages Tax Implications

Disclaimer: When it comes to taxes, this is just general advice and not to be relied upon as fact. When it comes to tax everyone’s position and circumstances are different and the rules are changing all the time. Only by seeking advice of a qualified tax professional can you be certain you are complying with all the relevant tax rules & regulations.

People who let out their holiday home may be eligible for capital gains tax relief for traders and entrepreneur’s relief at the time of selling.

You may also get allowances for fittings and furniture while having the option of offsetting any losses against profits in the future.

As a result, you may pay less tax on your profits.

Criteria Of Holiday Let Mortgages

Qualifying for holiday let mortgages can be challenging, with less lenders offering Holiday Let products.

While every provider has different rules, we have shortlisted some common criteria for securing a holiday let mortgage.

1. Minimum Income

Lenders usually set a minimum income requirement of £20,000-£40,000.

2. Loan To Value (LTV)

The average loan-to-value ratio set by lenders is 70%, but it might be higher in certain instances. You will likely have access to better interest rates the higher your deposit.

This is a general guide, always speak to a mortgage adviser or do your research as some lenders may be able to offer products with lower deposit levels. 

3. Rental Income

To determine how much you’re able to borrow, lenders will want to know how much the property could be rented out for throughout the year, in busy seasons and when it is less quiet. 

A Letting agent will look into this and provide estimates which the lender will usually request to see for their calculations.

4. Maximum And Minimum Mortgage Lending

The maximum and minimum mortgage lending will vary depending on the lender but usually range from between £25,000-£750,000.

5. Portfolio Limit

Sometimes lenders can limit the number of holiday let mortgages you can own, which can be as low as one property. 

Each lender has their own criteria so always speak to a mortgage adviser or do your research to find the best solution for your circumstances. 

6. Personal Situation

In some cases, lenders want to see that you already own a property whether that be a residential or a Buy-to-Let property.

Are Holiday Let Mortgages More Expensive?

The cost of holiday let mortgages depends on several factors, including – 

  • Loan to Value (LTV) 
  • Current market rates
  • Additional Fees
  • Maintenance costs

Interest rate and fees for holiday lets can sometimes be higher than residential or buy-to-let mortgages.

To understand this, let’s think of holiday let mortgages as a financial product, which would make it a niche product. As a result, less lenders offer products in this space so it can be less competitive. 

You also must not forget that letting out a holiday home is a seasonal business, and the source of income can vary depending on the peak season. Hence, the risk for lenders is higher, resulting in higher interest rates.

In most cases, lenders provide holiday let mortgages with deals ranging from 2-5 years at fixed rates. 

Is It Wise To Invest In A Holiday Let Mortgage?

As tourism continues to boom in the UK, holiday let mortgages might be a great investment.

If you can manage the higher upfront costs, it’s possible to let properties in popular destinations for rates much higher than standard rental charges.

Remember to research properly and choose a suitable location for bookings throughout the year.

Holiday Let Mortgages for Overseas Properties

If you have decided to buy a holiday home abroad, you will need to consider different options to Holiday Let properties in the UK. 

This can be more specialist as a lender will need to be found that lends in your chosen area.

You will also need to consider tax implications as even people with a good understanding of the native population and practices can sometimes be caught out with certain tax practices or legal complexities. 

Why Choose A Mortgage Advisor?

Mortgage Advisor

Lenders are often sceptical and want to ensure you can repay the mortgage amount. In such instances, they can offer intermediate mortgages by consulting a mortgage advisor to strike the best deals. 

The criteria surrounding holiday let mortgages can be quite varied depending on your situation. A mortgage advisor will find the best lender available for your circumstances and will take most of the stress away from you. 

Remember that the application is like a proposal for a business, and the figures in the form must be backed by evidence for a lender to accept them.

This can get quite complicated in some cases so a mortgage adviser will help you along the way and provide the evidence to the lender on your behalf. 

They are experienced in the intricacies of the process and help you complete the application from start to finish.

An advisor makes sure all the information is correct to help you make the most of this investment opportunity. 

Holiday Let Mortgage Rates

Holiday let mortgage rates vary between depending on the mortgage market at the time. The rates tend to improve depending on your deposit levels.

A higher deposit usually means the rates will reduce. Similarly, a smaller deposit results in higher rates.

Frequently Asked Questions

Is Airbnb the same as a holiday let?

Airbnb is a platform where people can list or book holiday lettings. So, while Airbnb isn’t the same as a holiday let, it’s a place where you can find and rent out holiday lets. A holiday let is the actual property you’re staying in.

Read more about Airbnb mortgages in our detailed guide.

What is the interest rate for a holiday let?

The interest rate for a holiday let mortgage in the UK varies, but as of April 2023, rate of interest for holiday let mortgages ranges between 5.5% to 7%.

Should I invest in a holiday let or a residential buy to let?

A holiday let can offer higher rental income but may require more management due to frequent tenant turnover. A residential buy-to-let generally provides steady income and less hands-on involvement, but the returns could be lower. So, it depends on your goals and circumstances.

Conclusion

As the saying goes – there’s no reward without risk – and this perfectly sums up a holiday let mortgage.

If you qualify for such a mortgage, there’s a lot to gain and it could turn into a successful business for either a second income or full time.

Make sure to read all the terms and conditions, and if you need help understanding anything, consult an advisor.

Do your research on the property and the area so you can be confident of rental returns throughout the year in all seasons. 

**A buy to let mortgage will be secured against your property.

Some types of buy to let mortgages are not regulated by the Financial Conduct Authority.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.

CeMAP & CERER Qualified Mortgage Adviser

I am CeMAP & CERER qualified mortgage adviser and have helped a number of clients realise their dreams when they thought it would not be possible. I’m skilled at getting mortgages sorted for people with a history of missed payments, CCJs, defaults, debt management programmes, IVAs and bankruptcies.

Mortgage & Protection Advisor | 03337892035

I am CeMAP (Certificate in Mortgage Advice and Practice) qualified mortgage adviser with a strong background in Finance. I specialise in providing expert advice on a range of mortgage products, including first-time buyers, remortgages, buy-to-let mortgages and bad credit mortgages.

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