What are Holiday Let Mortgages?

They are simply a mortgage that is arranged solely for the purposes of a holiday or seasonal letting basis.

The way that the mortgage itself works is no different to that of any other buy-to-let loan. You can usually set them up on either an interest-only basis or as capital and interest.

The main difference is in the way that a lender typically assesses the loan amount permitted. Instead of using a single monthly or annual rental income, lenders consider a spread of the high, mid, and low season rates.

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Author: Carl Shave - CEO and co-founder
Last updated: 26 May 2024

What is the difference between holiday let mortgages and standard Buy-to-Let mortgages?

The main difference is that lenders offer these in relation to properties being used for holiday or seasonal rentals. The mortgage deal will contain terms reflecting the temporary nature of its occupants.

A lender’s assessment will then consider the more unpredictable level of income. The lender will decide the highest amount they can offer by averaging the rates from the high, mid, and low seasons.

It’s also not unusual for a lender to require the borrower to have a minimum personal income. This is so they are sure that the borrower will be able to cover the repayments every month.

A Holiday Let property must not be used as your primary residence, no matter how attractive it may be. So, if you do wish to change the property’s usage, you will need to change your mortgage.

An introduction to Buy-to-Let Mortgages

Buy-to-Let topics

Whether you're investing in your first Buy-to-Let Mortgage or an experienced landlord, we can help.

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Holiday let mortgage advice

The holiday let mortgage market is a much more niche area of lending and with this typically comes much less choice.

Having fewer lenders to consider may lead you to believe that it will be an easier task finding the right one. However, with many of the lenders in this sector being much less recognised they’re not easily accessible, making it hard to find the best holiday let mortgage deals.

Furthermore, the criteria will vary from lender to lender. Meaning, finding one that you are eligible to use, is in itself, a time-consuming exercise.

The best way to ensure you receive the best advice is to speak to a specialist holiday let mortgage broker. In turn, this makes the whole process of arranging the finance a much easier and enjoyable experience.

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Holiday let mortgage lenders

As mentioned, the Holiday Let mortgage sector is a very niche area of the market. Meaning your options are limited. Although the range is very limited, some well-known names on the high street still entertain applications.

You are also able to approach a number of smaller building societies and specialist lenders who offer products too. These lenders may not be easily accessible, so a broker will need to be used to access them.

As with the residential market, every lender will have their own rules and criteria for applications. This will include how they assess how much you will be able to borrow. Therefore, we strongly recommend you carry out thorough research into all the options available to you. A specialist mortgage broker can do this on your behalf.

Some things lenders will review are:

  • Accurate definition of the property’s intended use.
  • Anticipated rental income from it.
  • The location.
  • How easy it would be to sell.

Any probable costs – these could be regular cleaning costs, maintenance, advertising, and improvements.

What if you are purchasing the property to use as your own personal holiday home?

Lenders will generally regard this as a second residential property mortgage. Therefore, lenders will consider your personal income as normal. This will help them to gauge how much you can borrow instead of any rentable value.

Every lender will impose their own specific rules and criteria. But, in general terms, expect some of the following:

  • Applicants will need to own their own home.
  • The minimum age is 21.
  • Minimum earned income (other than the subject property rent) £20,000 pa.
  • Max loan to be calculated using an average of the rental income for high, mid, and low season rates.

A minimum deposit of 25%.

Due to the greater niche of this type of lending, it does in turn give a much smaller pool of choice. However, this reduced choice does not necessarily mean inferior rates.

The interest rates available will be on a par with those of standard buy-to-let rates. The rates available to you will depend on factors such as:

  • The size of deposit or amount of equity.
  • Your credit history.
  • Property type.
  • Expected rental income.

How much deposit do I need for a holiday let property?

The only difference is how lenders will calculate how much you can borrow. When looking at the criteria it is very similar to that of a standard Buy-to-Let.

With this considered, the deposit amount you’ll be expected to supply will usually be a minimum of 25%. Meaning you will have a 75% loan-to-value mortgage. That said, some specialist lenders may possibly still be willing to consider loaning up to 85%.

This means you would need a 15% deposit. Although this will all depend on other factors in your circumstances around the property and the loan.
If the property is to be used as your own holiday home, then the mortgage is regarded as a second residential property. In this case, it’s likely that the amount of deposit required could be the customary 10%. Although, again, this will depend on your individual circumstances.

As ever, the larger the deposit you can supply, then the better your deal is likely to be. You may even find that you are able to access schemes with more favourable interest rates. It’s always best to talk to an experienced adviser to go over all the details of your situation.

How much can I borrow with a holiday let mortgage?

Knowing how much you can borrow can be a critical element of assessing the “value” to you as an investor. A holiday let will typically have a varied level of income throughout the year rather than a set monthly rent. So, lenders will assess how much you can borrow using an average of the rentable value covering the high, mid, and low season rates.

The interest rate used for the calculation will then have a stress rate applied to it. This can and does vary from lender to lender, but as a good guide the following can be used to give an indication:

Fixed rate less than 5 years or a variable rate = 125% @ 5.5%

Fixed rate of 5 years or more = 125% @ 5%

For example:

  • High season @ £700 pw
  • Mid season @ £500 pw
  • Low season @ £300 pw

Average equates to £500 pw that over 30 weeks = annual rental figure of £15,000

Taking a 5-year fixed term or longer into account, the maximum lending amount would be £206,896 using the calculation. This would be subject to any maximum loan to value.

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Holiday Let Mortgages FAQs

You can arrange a Holiday Let mortgage on the same basis as any other Buy-to-Let mortgage. This includes the option to set it up on an interest-only basis, a capital and interest, or indeed a split of the two. Be aware that when using an interest-only option, it’s your responsibility to arrange a repayment strategy.

Holiday Lets will invariably come with a less stable income stream than your standard Buy-to-Let. Due to this some investors will look at ways of offset this risk by keeping their contractual mortgage payments as low as possible.

So, the answer to this is yes.

As previously mentioned, the holiday let market is very niche. Leaving you with limited choice of lenders.

This, in turn, also means there is less competition, but this is balanced by the lower demand. Therefore, they will carry higher interest rates than conventional mortgages. However, you will find that they are typically no more expensive than a standard Buy-to-Let.

Fulfilling lenders specific criteria is very important. And if for whatever reason, you don’t meet all the requirements you may possibly have to consider a more expensive loan.

Something else to consider is that Holiday Let properties in peaceful, picturesque areas will be more expensive than standard Buy-to-Let properties in towns and cities. So, for that reason alone you may find you will a higher level of investment.

However, as a holiday let is classed as a business, you will still be able to claim tax relief on your mortgage interest. This privilege has now been reduced on Buy-to-Let properties. To qualify, a property must be furnished and available for letting for at least 210 days (30 weeks) out of the year.

To make sure you’re getting the most favourable deal on your mortgage, please feel free get in touch with our team.

It is possible to obtain a Holiday Let Mortgage with Bad Credit. However, due to the limited options in the first place, it’s much more difficult to find a suitable lender.

Therefore, we strongly recommend speaking to a specialist Bad Credit Mortgage adviser who should be able to assist.

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