Updated: December 10, 2021

How to get a Holiday Let Mortgage

Not sure where to start with a holiday let mortgage? Our in-depth guide will tell you everything you need to know about financing your holiday property.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: December 10, 2021

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:

Bullet Tick Overall rental yields (usually need to be higher for holiday lets than standard buy-to-lets)
Bullet Tick Personal income requirements (between £20,000-£40,000 per annum)
Bullet Tick Higher deposit requirements / lower loan-to-value (LTVs)
Bullet Tick Maximum lending amounts - lower for holiday lets than for buy-to-lets (less than £1 million)

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How to get a holiday let mortgage

If you’re looking for a holiday let mortgage there’s a few simple steps you can follow to make the process much more straightforward.

Here’s how we recommend you do it:

  1. Get your documents ready: Having your paperwork ready in advance can help you save precious time. As this is a second home for the purpose of a holiday let business, make sure you have a business plan prepared outlining the expected rental income, along with recent mortgage statements on your main residence. Take a look at our guide to mortgage applications to find a full list of exactly what you’ll need.
  2. Check 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. You can download your credit reports through our dedicated credit reports hub.
  3. Speak to a mortgage broker: Once you’ve got your documents together, the next step is to speak with a broker who has experience dealing with holiday let mortgages. They will be able to guide you through the process and manage your application from start to finish. As these types of mortgages are quite unique, this could save you a lot of time going back and forth trying to find the right lenders who can offer the best rates.

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:

Bullet Tick It must be fully furnished
Bullet Tick The property must be commercially let and available for at least 210 days in a tax year (or 12 month period from when you first took ownership)
Bullet Tick It must actually have been let out for 105 days in that same year
Bullet Tick Each individual rental agreement must be for no longer than 31 days (you can, in theory, rent it to one party for longer but only 31 days can be used towards the overall 105 day total)
Bullet Tick Private lets to friends and/or family at reduced rates will not count towards the 105 day total

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:

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:

Bullet Tick The size of your deposit (see next section below).
Bullet Tick Your credit history.
Bullet Tick Your age - some lenders will impose a minimum age (usually 21) and a maximum age for this type of home loan (between 75 and 86 normally).
Bullet Tick Your personal income. Most lenders require a minimum of between £20,000 and £40,000 a year.
Bullet Tick Loan to value ratio. Lenders tend to set a maximum loan-to-value (LTV) ratio of 70%, but it can go as high as 75%.
Bullet Tick The property type - unusual properties or buildings with ‘non-standard’ construction often call for a specialist lender

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.

Typical examples of the rates available on holiday let mortgages at the time of writing (November 2021) are as follows…

  • The Cumberland offers a 2 year fixed-rate of 3.44% on a loan-to-value (LTV) ratio of up to 60%. If the LTV ratio is between 60 and 75% the 2 year fixed interest rate will increase to 3.84%.
  • Leeds Building Society offers two-year fixed rates on holiday-let mortgages starting at 3.44% at 60% LTV, or 3.95% on the higher 75% LTV.
  • Leeds BS also offers five-year fixed rates starting at 3.40% interest rate for 60% LTV and 4.19% interest rate for 75% LTV, with no mortgage-arrangement fees.

Other lenders decide their rates on an individual basis, depending on the value of the property you’re buying, the amount of deposit you have, and the potential income the property offers.

However, approaching one lender directly is usually not advised. This is because you’ll limit yourself to just one provider’s rates and deals, when there are so many more out there.

Instead, it is better to speak to a specialist holiday let broker. This should give you access to the best rates. Some may even have access to exclusive deals and will know which lenders to approach for your specific circumstances.

Get matched with a holiday let mortgage broker today

The best way to land a great holiday let mortgage is to use a broker who specialises in that market. They will have the knowledge, experience and lender contacts to make sure that you secure the best rates and on the best terms.

We offer a free, broker-matching service that will quickly assess your needs and circumstances to pair you with the mortgage advisor who’s best placed to help you. They will already know which lenders have the expertise to deal with this type of mortgage and will be able to manage your application through the whole process.

Call 0808 189 0463 or make an enquiry and we’ll set up a free, no-obligation chat between you and your ideal buy-to-let mortgage broker today.

FAQs

What if I want to use Airbnb?

Letting your property out on Airbnb shouldn’t affect your mortgage eligibility. In fact, putting your holiday buy to let on Airbnb could take a lot of the hassle and stress out of marketing and organising your buy to let or holiday let.

It goes without saying that the more popular the area, the more bookings you will receive. Think carefully where you’ll buy a holiday let in the UK as this will affect how successful your venture is

Does the holiday let need to be furnished?

Simply put, yes. If you want to get a mortgage on a holiday let business and qualify for the various tax benefits then one of the stipulations are that the property must be fully furnished.

The good news is, though, you can claim tax relief on all your fixtures and fittings too.

Can I get a holiday let mortgage in Scotland?

Yes. Holiday let mortgages are available in Scotland and work in much the same way as they do in England and the rest of the UK. One thing to bear in mind, though, is that there are often postcode restrictions north of the border. Most lenders won’t be keen to offer you a mortgage in the holiday let property is located in the Highlands or away from the mainland.

You can find more information about this topic in our guide to buy-to-let mortgages in Scotland.

Can I get a holiday let mortgage abroad?

Yes, but you might need a specialist lender with an international reach to get the best rates. The best way to improve your chances of approval is to find a mortgage broker who specialises in overseas investment mortgages, as their knowledge, experience and lender contacts could be the difference between a successful outcome and mortgage rejection.

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We can help! We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Buy-To-Let mortgages. Ask us a question and we'll get the best expert to help.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. 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 that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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