Holiday let mortgages

We look at the type of mortgage you’ll need if you want to buy a holiday home to let, including the costs involved and how to find the best deal.

Modern villa with a garden and a pool in sunny weather.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

A holiday let can be an attractive investment as you’ll be able to charge more when the property is let compared to a regular buy-to-let and you’ll be able to use the property for holidays yourself, but you’ll need a specialist mortgage to buy one if you don’t have the cash already available.

As holiday homes are let on a short-term basis, you can’t get a buy-to-let mortgage to buy one as these assume that the property is let using an assured shorthold tenancy of at least 6 months to 1 year.

And although you may be able to make more money overall with a holiday home, the income fluctuates so the rental income you’ll get, which is needed to work out how much you can borrow, is worked out differently.

You can’t use a residential mortgage either as these don’t usually allow you to let the property.

Holiday let mortgages are for properties in the UK. To buy a property abroad you’ll need an overseas mortgage. 

Holiday let mortgage tax benefits

One advantage of buying a holiday home with a holiday let mortgage is that there are tax benefits you no longer get with buy-to-lets. Since the 2020/21 tax year residential landlords haven’t been able to deduct any of their finance costs (such as mortgage interest and set-up fees) from their rental income to reduce the amount they pay income tax on. 

Instead, you just get a tax reduction based on your finance costs at the basic rate of income tax, which means you pay more tax compared to the previous system if you’re a higher-rate taxpayer. 

Owners of furnished holiday lets, however, can continue to deduct their finance costs from their income as before. The property must be available to let as holiday accommodation for at least 210 days a year to qualify and be let for at least 105 of those days. This doesn’t include any periods when you’re staying at the property.

However, if you already own a property you’ll still pay the 3% stamp duty surcharge on additional properties when you buy it.

Holiday let mortgage criteria

Although you may be able to borrow up to 80% of the property’s value (known as the loan-to-value or LTV) with a buy-to-let mortgage, the maximum with a holiday let mortgage is usually 75% as the short-term nature of the lettings make it riskier for the lender. This means you’ll need to have a deposit of at least 25% of the property’s value. Lending criteria also tend to be stricter.

Additional criteria that may apply include:

  • Minimum and maximum loan amounts. Loans allowed per property could range from £40,000 to £1 million, depending on the lender 

  • Minimum levels of personal income (separate to the rental income you’ll get from the property). This could be at least £25,000 for one applicant or £30,000 for joint applicants, for example, but there may be higher minimums for cheaper deals or bigger loans

  • As with all mortgages, maximum ages at which you can borrow or when the mortgage term can end – usually up to 85

  • An expected rental income of 125% to 145% of the mortgage interest, based on a higher interest rate than you will actually be paying. This could be 5.5% or 2% above the interest rate for example. This is to make sure you would be able to afford the mortgage repayments if rates went up 

  • A maximum period in a year that you can stay in the property yourself, which could be 2 or 3 months

  • If you own more than one rental property, a maximum portfolio size

You can usually take out holiday let mortgages for multi-unit properties, such as a block of flats and if you are a new landlord. You can also take them out if you want to own the property within a limited company, which can give you tax advantages. Interest rates on these are likely to be higher. They also usually allow you to let your property through platforms like Airbnb.

You probably won’t be able to get a mortgage to buy a temporary or moveable structure such as a mobile home.

The lender will look at your income and outgoings, including any other mortgage you have – to make sure you can afford to pay back the mortgage and will be able to cover the repayments even when your holiday let is empty. If you’re self-employed you’ll need to show at least two years of accounts.

As with buy-to-let mortgages, holiday let loans are usually taken out on an interest-only basis.

Holiday let costs

Bear in mind that there may be extra costs involved with holiday lets compared to buy-to-let properties. Holiday lets are usually furnished, which is an initial and potentially ongoing cost, and you will have to pay the utility bills and for cleaning between each guest unless you do it yourself.

How much of the year your holiday home will be let for will be uncertain and you might make lots of money in high season and very little during the rest of the year so you’ll need to be able to cover the mortgage payments regardless. If tourism declines in the area where your property is located for any reason that could also reduce your rental income.

Owning a holiday let is more time-consuming as you’ll have multiple bookings to manage, enquiries to reply to and guests to deal with as well as having to keep on top of how you advertise the property, which is likely to be online. 

Holiday let mortgage calculator

To find out how much your monthly interest repayments would be borrowing different amounts and at different interest rates or to find out how much you could borrow, you can use a holiday let mortgage calculator. You’ll find a number of them online on both broker and lender websites so it’s worth trying a few to get the information you need.

Holiday let mortgage rates

Holiday let mortgages are more expensive than regular buy-to let deals although bear in mind that you’ll be able to save on income tax by deducting your mortgage interest from your profits. 

You’ll find both fixed and discounted variable rate deals, usually over a 2- or 5-year initial period. Rates range from around 3.2% to 4.25%. The lower the maximum LTV allowed the less you’ll pay and fixed rates usually cost more than discounted rates but they give you certainty about how much your repayments will be each month. 

Make sure you look at the total cost over the initial deal period, after which you’ll be able to remortgage without paying early repayment charges, including any set-up fees rather than just the interest rate when you’re comparing deals. A low interest rate doesn’t necessarily mean it’s the cheapest overall. 

The lenders offering holiday let mortgages tend to be smaller building societies rather than big banks and building societies and there are a limited number. You may find them at the following lenders:

  • Cumberland Building Society

  • Furness Building Society

  • Hodge Bank

  • Ipswich Building Society

  • Leeds Building Society

  • Monmouthshire Building Society

  • Principality Building Society

  • Teachers Building Society

  • Vernon Building Society

Best holiday let mortgages

To find the best deal, it’s a good idea to speak to a specialist mortgage broker as they will be able to look at all available products to find the ones that suit your needs. They will know which lenders are likely to lend to you, be able to help you compare the true cost of deals, make it easier to get a mortgage if you have an unusual situation or a poor credit history and handle the application process for you.

As with regular buy-to-let loans, holiday let mortgages are not regulated by the Financial Conduct Authority so if you go direct to a lender it won’t give you any advice about the suitability of the mortgage you want to take out. However, mortgage brokers do have to be regulated so if they give you poor advice you’ll be able to claim compensation.

Holiday let mortgage alternatives

Other ways to finance buying a holiday let include remortgaging your home to release the equity to buy it, although you won’t be able to offset your finance costs against your rental profits before paying income tax. Or if you have the majority of the money, you can take out a personal loan to make up the shortfall. These are usually available up to £25,000.

If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs.