How To Get A Holiday Let Mortgage

19-July-2021
19-July-2021 16:30
in Mortgage
by Sam Hodgson
How To Get A Holiday Let Mortgage

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

A standard buy to let mortgage won't be applicable for this type of property. This means you'll need to know where to look to get the finance you need to tap into the booming holiday let market.

With progressive rental solutions like Airbnb becoming the norm, the convenience and profitability for landlords is greater than ever. There’s also little sign of the market slowing down just yet.

Standard buy to let properties have long been a staple investment for property buyers. However, holiday let properties are offering a unique and exciting alternative to investors looking to generate rental income from a second property. Holiday lets can also benefit from potential growth in the housing market, and even functioning as a personal holiday home for private use.

You won't be able to obtain a buy to let mortgage on this type of property. This is because the rental income will likely fluctuate throughout the year based on the holiday seasons. This means you'll need to look for 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 a number of 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.

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

holiday let property

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

A key factor in a typical buy to let mortgage is the amount of rental income the property will likely generate each year. 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 is 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 in to their mortgage calculators.

A holiday let, however, will rely on short term rental agreements of weeks or even days at a time. The rental amounts will also likely fluctuate with the holiday seasons of the year depending on the property. This is more difficult to estimate through traditional mortgage calculators, and riskier for lenders to take into consideration.

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

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

You will likely need a larger deposit than you would with 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 the annual rental income figure from your property will probably need to be higher as well. Most lenders require 125-145% of the loan repayment to be generated through rent.

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

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

rental property

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

Most mortgage lenders will not lend on holiday park properties. This is because they cannot be re-sold easily for a different purpose, or be rented out on an AST as an alternative. The flexibility of being able to re-sell or re-rent your property for a different 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 talking about UK holiday properties, coastal locations often jump to the forefront. However, while the income they generate can be very lucrative in the summer holiday season, their profitability cools off in the winter months.

Their closer proximity to universities and job opportunities for longer term renters is also an important factor. The ability to switch to an AST for six or twelve months will be attractive to both you and your lender.

This is significant when you consider the increased workload involved in managing a holiday rental property compared to a standard buy to let. Just 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?

Yes. You will need to check with your lender beforehand, but most lenders will accept properties that 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 are having 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 are able to claim tax relief on the interest you pay on your mortgage.

This is one reason why re-mortgaging your main 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 gain in the property’s value when you come to sell it.

Are holiday let mortgages authorised and regulated by the FCA?

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

Who is offering holiday let mortgages?

The holiday let property market is growing, particularly with the surge in UK holiday makers since the COVID-19 pandemic. However, most of the big mortgage lenders are not offering specialist mortgages for this type of property investment.

They know the market well, and know the strengths and specialities of each individual lender. They are primed to connect you to the lender that’s most appropriate for your individual situation.

How can a specialist mortgage broker help?

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

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. 

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