How to get a Holiday Let Mortgage

There’s been a significant rise in UK-based holidays over the last couple of years, due mainly to the recent pandemic. As a result, there’s also been a big increase in demand for holiday let mortgages.

By following this guide you’ll have a better understanding of which type of mortgage best suits a holiday let property, how to find the best rates and what else you should know before starting your business.

What type of mortgage do you need for a holiday let?

If you’re planning to buy a second home for the purposes of renting it out to tourists when you’re not using it, you’re going to need a holiday let mortgage.

Some lenders do allow applications for holiday rentals to fall under their standard buy-to-let mortgages umbrella but the eligibility criteria can be quite prohibitive as a result.

It’s far better to find a specialist lender who offers tailored home loans for this particular type of venture.

What’s the difference between a holiday let and buy-to-let mortgage?

In terms of the actual mortgages, there’s very little difference. Both are available as either interest-only and repayment (with a preference usually for the former).

The key difference relates to how affordability is assessed.

The main concern lenders have with holiday let properties is what happens if there’s prolonged periods when it’s not rented out?

This will obviously have a knock-on effect if rental premiums can’t cover the mortgage repayments.

As a result, there’s only a select group of lenders willing to consider applications for holiday let business’.

Those that do tend to be focus their criteria on:

How much can you borrow?

This will be based on the projected rental income for your holiday let property.

Try our mortgage calculator below to get a rough idea of whether your mortgage payments are likely to be affordable based on your property’s rental potential.

How to get a holiday let mortgage

If you’re looking for a holiday let mortgage approaching a mortgage broker with experience in this area is the smart first move and will make the process much more straightforward.

Here’s how they can help:

• Preparing your documentation and business plan: Having your paperwork ready in advance can help you save precious time and a mortgage broker will know exactly what you need. As this is a second home for the purpose of a holiday let business, you’ll need a business plan prepared outlining the expected rental income, along with recent mortgage statements on your main residence. Your broker will be able to offer assistance and guidance here too
• Checking your credit reports: Regardless of what type of mortgage you’re looking at, all lenders will want to check your credit history so it’s also a good idea to have a copy of your report beforehand. This will allow you to correct any inaccuracies and remove any details that are out of date or just wrong. Your broker will show how you can download your credit reports and point out what lenders will typically look for
• Getting the approval you need – first time!: As these types of mortgages are quite unique, having someone with experience in this type of lending will be crucial. This could save you a lot of time going back and forth trying to find the right lenders who can offer the best rates as your broker will already know exactly who to approach

Our free, broker-matching service will quickly assess your needs and circumstances to pair you with a mortgage advisor who’s ideally placed to help you – Make an enquiry to get started.

What is the actual classification of a holiday let property?

Unlike buy-to-let properties that are bought for the sole purpose of renting out full-time, the aim of a holiday home is to only rent them out on a short-term basis.

As such, there’s a number of tax advantages available for holiday let business’ as long as you follow certain rules.

If you’re thinking of buying a property to use as a qualifying holiday let business, the guidelines you need to adhere to are:

The tax advantages of owning a holiday let property

As long as you follow the rules outlined above, your holiday let business should qualify for the following tax benefits:

• Unlike private landlords, you can still claim full tax relief on all of your mortgage interest payments
• Both capital gains tax and entrepreneur’s tax relief are available when you eventually sell the property
• Plant and machinery capital allowances are available on all furniture and fixtures within the property

In addition to all of the above, there’s one other obvious benefit of a holiday home often overlooked. Outside of the 210 days it must be available for commercial purposes, you’re allowed to live in it – and enjoy the benefits of having it – yourself.

Holiday let mortgages are considered quite ‘niche’ so finding the right lenders who offer this type of home loan can be tricky.

Using the services of an experienced mortgage broker – who’ll know exactly where to look – will definitely be to your advantage here, saving you a lot of time.

Eligibility criteria

The criteria will differ depending on whether you’re applying for a holiday let mortgage or a standard buy-to-let mortgage.

The  key difference between the two is the affordability requirements.

As buy-to-let properties tend to have long-term tenants, the rental income you will receive is much more predictable than with holiday lets – which may be left empty for some of the year.

This means you may be expected to have a greater personal income and/or a larger rental income from the property in order to give a lender confidence that your repayments will be covered throughout the term.

For standard buy-to-let mortgages, most lenders expect to see an overall rental yield equivalent to between 125-145% of the mortgage repayment.

However, for holiday lets this may need to be higher. In some cases the yield may need to be at least 170%. But, this can also vary from lender to lender.

Other factors that could affect your chances of approval

In addition to the rental income, the general eligibility criteria for holiday let mortgages will vary between lenders but the following will almost certainly play a part in the decision-making process:

Deposit requirements

Like all other types of mortgage, your chances of getting approved for a holiday let mortgage will increase with the size of your deposit.

In this case, the deposit required will usually be higher than standard buy-to-let mortgages due to the higher risk involved.

The exact amount required for your mortgage will vary from lender to lender. In general, you’ll need at least a 25%-30% deposit.

The higher deposit you can put down, the better chance you have of qualifying for the best rates.

How to get the best rates

Interest rates for holiday let mortgages are usually higher than for standard buy-to-let mortgages. Again, this is generally down to the perceived additional risk involved with this type of venture. But, there are some good opportunities available, if you know where to look.

The table below illustrates some typical examples of the best interest rates currently available (May 2023) on holiday let mortgages:

All the above rates are purely for example purposes, were correct at the time of writing and are subject to change at any time at the lender’s discretion.