How To Get A Holiday Let Mortgage

01-February-2023 16:46
in Mortgage
by Sam Hodgson
How To Get A Holiday Let Mortgage

This guide looks at what kind of mortgage you need for a holiday let, what rates you'll pay, what deposit you need, how to get one, etc.

We've seen a significant influx in property purchases for holiday lets across the UK in recent years. However, mortgage lenders have been slow to keep up, and most big UK lenders are still not offering specialist, holiday let mortgage products.

With progressive rental solutions like Airbnb becoming the norm, the convenience and profitability for landlords are more significant than ever. And there's little sign of the market slowing down just yet.

But how can you get finance for a holiday let property? And can you use a standard buy-to-let mortgage for your purchase?

Read blog: Spring Budget 2024: 5 Key Property Market Takeaways

In This Guide

Can I get a Standard Buy to Let Mortgage for a Holiday Let?
The essentials for qualifying for a holiday let mortgage
How is a holiday let mortgage different to a buy to let?

How much of a deposit do I need?
What interest rates will I pay?
What kind of property can I buy with a holiday let mortgage?
Are thy only for coastal properties?
Can I use Airbnb to let my property?
What are the tax benefits of a holiday let mortgage?
Are holiday let mortgages regulated by the FCA?
Where can I get a holiday let mortgage?
How can a specialist mortgage broker help? 

Can I get a Standard Buy to Let Mortgage for a Holiday Let Property?

You won't be able to obtain a buy to let mortgage on this type of property. The rental income will likely fluctuate throughout the year based on the holiday season. This means you'll need a specialist holiday let mortgage instead.

These can be harder to find due to the limited number of lenders offering the product. They also have several unique qualities that are important to know before applying. This guide will outline everything you need to consider when applying for a holiday let mortgage and where to look for them.

Example Mortgage For Holiday Let Property

The essentials for getting a holiday let mortgage:

  • Know your property's low, mid and high season weekly season rental figures 
  • No minimum income needed
  • You don't need to be a homeowner/occupier 
  • Listed properties excepted
  • Speak to a Mortgage Broker 

How is a holiday let mortgage different to a buy-to-let mortgage?

Due to the unique income patterns that holiday let properties generate, you'll need a specialist mortgage from a bespoke lender.

A critical factor in a typical buy-to-let mortgage is the property's rental income each year will likely generate. This figure is combined with any other earned income to assess the likelihood of you being able to keep up with the repayments on your mortgage. This is why the regularity and security of this income are crucial.

A standard buy to let rental property will provide an assured shorthand tenancy (AST) of six or twelve months at a time. This rental income will be consistent and reliable throughout the year, which is easy for lenders to factor into their mortgage calculators.

holiday let property

However, a holiday let will rely on short term rental agreements of weeks or even days at a time. The rental amounts will likely fluctuate with the year's holiday season, depending on the property. This is more difficult to estimate through traditional mortgage calculators and riskier for lenders to consider.

It's worth noting that holiday let mortgages are separate from holiday home mortgages. These are usually filled through standard residential mortgages, as these properties are not intended to be rented out.

Book Consultation »

How much of a deposit do I need for a holiday let mortgage?

You will likely need a larger deposit than a standard buy to let mortgage. This is due to the risks involved from a lender's perspective. You can expect to pay a minimum deposit of 25-30% of the property value. However, some lenders may require up to 40% to be put down.

It's worth noting that your property's annual rental income figure will probably need to be higher. Most lenders require 125-145% of the loan repayment generated through rent. 

What interest rates will I pay for a holiday let mortgage?

Along with a higher deposit requirement, you may also need to pay higher variable and fixed interest rates on your loan. This is due to the complexities of the risk from a lender's perspective.

Although you'll pay a higher rate, specialist mortgage products are available for holiday let properties aim to keep their interest rates as low as possible. 

Lenders that specialise in holiday lets are familiar with the holiday rental market and can comfortably assess the risks involved, so they can still offer great interest rates and flexible repayment options in most cases. 

It would help to consider whether you'd want a fixed rate or tracker mortgage product. Our guide covers everything you need to know: Should You Get a Tracker or Fixed Rate Mortgage in 2022?

rental property

What kind of property can I buy with a holiday let mortgage?

Most mortgage lenders will not lend on holiday-park properties. They cannot be re-sold easily for a different purpose or be rented out on an AST as an alternative. The flexibility to re-sell or re-rent your property for further use is valuable to lenders.

Most lenders will also have specific lending criteria on the type of build (e.g., no timber frame-only properties). They will also rule out development properties but are usually flexible on some light refurbishment requirements. 

Is a holiday let mortgage only for coastal properties?

When discussing UK holiday properties, coastal locations often jump to the forefront. However, while their income can be very lucrative in the summer holiday season, their profitability cools off in the winter.

Their proximity to universities and job opportunities for longer-term renters is also essential. Switching to an AST for six or twelve months will be attractive to you and your lender.

This is significant when considering the increased workload involved in managing a holiday rental property compared to a standard buy-to-let. Remember to check with your lender if their mortgage terms will allow for an AST alongside holiday lets for the same property.

Can I use Airbnb to let my property on a holiday let mortgage?

Yes. You will need to check with your lender beforehand, but most lenders will accept properties you plan to rent through Airbnb. This renting method is becoming more respected in the industry as the demand for the product continues to grow. In turn, lenders have to adapt to the changing market.

holiday let location

What are the tax benefits of a holiday let mortgage?

Unlike a standard buy to let property, a furnished holiday let (FHL) is treated as a business. This means you can claim tax relief on the interest you pay on your mortgage.

This is one reason why re-mortgaging your primary residence, so you can buy a holiday let outright isn't always the best option. You might access cheaper interest rates via a residential mortgage, but you won't be able to offset the interest for tax purposes.

This is the only tax advantage of a holiday let mortgage. You will still be required to pay capital gains tax on any property value increase when you sell it and stamp duty tax when you purchase your holiday let. 

Read our guide on Stamp Duty Tax: What Stamp Duty do I Need to Pay, and can my Mortgage be Used to Cover it? | Blog

Many of our clients purchase buy-to-let properties through a Limited Company, also known as a Specialist Purpose Vehicle (SPV). 

Here's our complete guide on purchasing a buy-to-let via a limited company and whether it's worth it: How to Get a Limited Company Buy to Let Mortgage 2022 | Everything You Need To Know 

Are holiday let mortgages authorised and regulated by the FCA?

As with most buy to let mortgages, the Financial Conduct Authority (FCA) does not regulate holiday let mortgages. This is because the owner does not intend to permanently live in the property as they would be with a residential mortgage.

While you're here, read our latest news post on mortgage interest rates in the UK: NEWS: Are Mortgage Rates Going Up in Response to Interest Rate Hikes? 

Where can I get a holiday let mortgage?

The holiday let property market is growing, particularly with the surge in UK holidaymakers since the COVID-19 pandemic. However, most big mortgage lenders do not offer specialist mortgages for this property investment.

They know the market well and each lender's strengths and specialities. They are primed to connect you to the most appropriate lender for your situation.

Book Consultation »

Example Case of Bridging Loan Funding Holiday Let Project

How can a specialist mortgage broker help?

A specialist mortgage broker, such as Clifton Private Finance, excels at finding the best rates available to holiday let mortgage customers. We have relationships with multiple specialist lenders in the industry and will consider your circumstances.

Thanks to our trusted relationship with many providers, we often secure exclusive rates for customers that aren't available to applicants going direct.

More on our buy to let mortgage services.

Give our helpdesk a call today, or complete our contact form below, and we can help find the right solution for you, whatever your circumstances. 

0117 959 5094