Holiday Let Mortgages

As staycations increase in popularity in the UK, many property investors are turning to holiday lets in addition to, or instead of, traditional buy-to-let properties. If you’re considering this type of investment but are unsure of how to finance it or get the best deal, read on.

In this article, we’ll explore the specialist area of holiday let finance, the criteria you’ll need to meet to get a holiday let mortgage and the importance of seeking advice from an experienced broker.

What type of mortgage do you need to buy a holiday let?

If you’re looking to buy a property to let out on a short-term basis, you’ll need a holiday let mortgage. This is a niche area of lending and differs from both buy-to-let mortgages and second home mortgages.

It’s important to understand that the location of the property plays a significant role. If the property is in the UK, you will need a UK holiday let mortgage. However, if the property is abroad, you will need an overseas mortgage, which is generally more complex and may require dealing with different legal and financial regulations.

If you’re interested in getting an Airbnb mortgage we have a separate article on that specific topic.

How does it differ from a buy-to-let mortgage?

Buy-to-let mortgages are intended for rental properties offered to long-term secure tenants, who live in the property as their primary residence. This usually involves an agreement called an Assured Shorthold Tenancy (AST) with a minimum tenancy of 6-12 months.

Holiday let mortgages, on the other hand, are intended for short-term lets, usually with a maximum tenancy of 31 days at a time. This makes the rental income more vulnerable to fluctuation. Consequently, lenders need to perform a more complex projection of the potential rental income, considering low, mid, and high-season lettings. They will typically also assess your personal income alongside this to ensure you can cover the mortgage during periods of low occupancy.

One consequence of these differences is that you will typically need a larger deposit when applying for a holiday let mortgage compared to a buy-to-let mortgage.

How to get a holiday let mortgage

1. Consult a Specialist Broker: Your first step should be to speak to a broker who specialises in holiday let mortgages. Their expert advice can make the difference between securing the best deal and missing out. Make an enquiry, and we will match you with a holiday let mortgage specialist who can guide you through the entire process.
2. Prepare Essential Documents:
   • Optimise Your Credit Report: Download and review your credit reports to ensure they are accurate and optimised.
   • Create a Business Plan: Prepare a detailed business plan outlining your projected income from the holiday let, including low, mid, and high-season projections.
   • Required Documents: Ensure you have all the necessary documentation, such as proof of income, bank statements, and identification.
3. Find the Right Lender: Work with your broker to find the right lender who offers competitive rates and favourable terms for holiday let mortgages. Your broker will assist in filing the perfect mortgage application.
4. Meet the Deposit Requirements: You will usually need a deposit that is at least 25% of the property’s value.
5. Prove Additional Income: Lenders typically require you to have an income in addition to your projected income from the holiday let. Be prepared to demonstrate this with evidence such as payslips or bank statements.
6. Obtain Holiday Home Insurance: Due to the risk of cancellations that could lead to a loss of rental income, holiday home insurance will be required. This insurance protects your investment and ensures you can cover your mortgage payments even during periods of low occupancy.
7. Fully Furnish the Property: The property will need to be fully furnished to meet the standards expected by holiday renters. This is essential for attracting bookings and generating the projected rental income.

What kind of interest rate to expect

Take a look at our rates table below to get an idea of the deals currently available on holiday let mortgages.

Please note that the above rates were accurate at the time of writing, but are always subject to change at the lender’s discretion. Speaking to a mortgage broker is the best way to find the most up-to-date deals.

Which lenders offer them?

There are a lot of mortgage lenders available in this market, and it’s likely to increase with the continued popularity of UK holiday rentals. At the moment, however, it remains a specialist area of lending served by building societies and smaller private lenders, many of which you won’t be able to access without a broker.

The criteria and flexibility of lenders vary dramatically from one to the next. For example, The Cumberland will lend between £75,000 and £2 million at up to 75% LTV per property, if you have a minimum income of £25,000, already own a residential property, and can provide satisfactory projected or proven rental income. If the ability to list on Airbnb is important to you, however, then Hodge Bank is happy to lend on this basis at up to £1.5 million at 75% LTV, with no personal income requirement. This lender also covers Scotland, which many others do not.

If you’re considering offering your residential home on Airbnb on an ad hoc basis, then the good news is that some lenders are beginning to warm to this as an option for the average homeowner who’s not looking to build a holiday lettings business. For example, Barclays customers with a standard residential mortgage have the option to let out their homes on Airbnb, so long as the property is not occupied by someone other than the owner for more than 90 days in any 12 calendar months, and no more than 30 days consecutively.

There are no interest rate increases associated with this facility. However, the borrower is obliged to ensure that there are no breaches of local authority regulations.

Rules and eligibility criteria

As a fairly niche area of lending, with more risk involved for the lender than traditional buy-to-let properties, there are typically stricter lending criteria for holiday let mortgages.

Criteria vary between different lenders, but you’ll usually need to meet most or all of the following terms:

• Deposit requirement – Most lenders cap their lending at 75% LTV (loan to value) which means a deposit of at least 25% is typically required. A few lenders will consider 80% LTV, lowering the deposit requirement to 20%, however, this is still far higher than for a residential mortgage, which can be as low as 5%. It’s also possible that you’ll need to find up to 40% deposit, depending on the lender, and your personal circumstances.
• Homeowner status – Whilst you won’t necessarily need experience as a landlord, it’s not usually possible for first-time buyers to get a holiday let mortgage, so you’ll typically already need to be a homeowner.
• Minimum income – As the loan is based on uncertain rental income projections, most lenders prefer that you also have a personal income, to ensure you’ll be able to afford the monthly repayments in low seasons and/or when the property is not bringing in as much rent. The minimum income requirement ranges from £10,000 to £40,000 depending on the lender, although there are a couple of holiday let mortgage providers who don’t have a minimum income requirement.
• Maximum loan amount – Many lenders impose a maximum loan value of between £400,000 and £750,000, although it’s possible to extend borrowing as far as £1.5 million with certain lenders. A minimum loan amount may also apply, and this is typically between £25,000 and £75,000, depending on the lender.
• Minimum projected rental income – Most lenders will expect the property to be able to achieve a gross rental income of around 145% of the monthly mortgage repayment, although this figure can be as low as 125% with some. It’s also common for lenders to insist upon approval of the anticipated rental prices by a reputable holiday letting agency.
• Age restrictions – Most mortgages have minimum and maximum age limits at application, however, the minimum age here tends to be 21, rather than 18, which is typically the minimum age for a residential mortgage. The upper age limit is similar to most other mortgage types and ranges between 75-85, depending on the lender.
• Property usage restrictions – Although many lenders allow you to enjoy the property for personal use for a specified number of days per year, you will not be able to use any property purchased with this type of mortgage as your main residence. Many lenders mirror the HMRC definition of a holiday let and will expect that the property is available for let for at least 210 days per year and to be let for a minimum of 105 days per year. They may also require that you use an approved holiday letting agent to market the property on your behalf to meet these demands.
• Property type – There may be restrictions on the type of properties you can buy, for example, buildings of non-standard construction, such as thatched cottages, will be less appealing to some lenders. It’s also typically more difficult to qualify for a holiday let mortgage on any property that cannot easily be resold, so those that are purpose-built for holiday use are not usually easy to finance.
• Geographical restrictions – The location of your chosen holiday let can also impact the lender’s decision, and it can be more difficult to secure finance for purchases outside of the mainland UK, although some specialise in areas such as the Isle of Wight.
  If you’re looking to buy in another country, you’ll need to look at a lender that offers overseas mortgages.
• Portfolio size – Some lenders set a limit on the maximum number of holiday lets you can own at any given time, this typically ranges between 1 and 10, although there are lenders with no portfolio size limit.

Getting a holiday let mortgage in Scotland

The market is much smaller than it is for those buying in England and Wales, with only 10 lenders currently accepting Scotland-based holiday lets at the time of writing. Properties in the Scottish Highlands and outlying islands can be difficult to secure, however, some lenders are more flexible about location than others.

Get matched with a holiday let mortgage broker

Holiday lets can certainly be a profitable investment, however, finding the right finance for them is not always straightforward, and seeking expert advice at the beginning of the process is highly recommended. The good news is, you don’t need to look for a broker with extensive experience in the holiday letting niche, as our free broker matching service will do that for you.

Simply call today on 0808 189 2301 or make an enquiry and we’ll put you in touch with a broker that can help you to secure the funds you need at the best rate possible for your circumstances. Your initial appointment will always be free, and you’re under absolutely no obligation.