Holiday Let Mortgages

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Holiday Let Mortgages

  • Holiday Let Specialists
  • Great Reviews
  • Exclusive Rates
  • Free Advice
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Author: Carl Shave - CEO and co-founder
Last updated: June 16th, 2022

What is a Holiday Let Mortgage?

A Holiday Let Mortgage is simply a mortgage that is arranged on a property used 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 and can usually be set up on either an interest only basis or a capital and interest.  The main difference is in the way that a lender typically assesses the loan amount permitted whereby, rather than a single monthly or annual rental income being used, a spread of the high, mid and low season rates are considered.

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How do holiday let mortgages work?

In general, Holiday Let mortgages work in the same way that most other Buy-to-Let mortgages would, i.e., more geared to the property being an investment and business asset – but there are some subtle differences. Not all of them you will need to worry about, but they mainly relate to the nature of the property – the way that it is being used and the seasonal fluctuations in use and income that you will see over the course of a normal year.

The main difference with a Holiday Let mortgage is that lenders offer these solely in relation to properties that are used or are intended to be used for holidays or seasonal rentals. Rather than where a standard assured shorthold tenancy (AST) is in place, or the property is being used as a house of multiple occupancy (HMO), the mortgage deal will contain terms reflecting the temporary nature of its occupants and their assessment will take into account the more unpredictable level of income.

With this different use of the property and the anticipated income, the mortgage amount that a lender will consider extending to the borrower on a Holiday Let is also assessed in a different way. Instead of basing their calculations on a regular anticipated rental income (with allowances for potential gaps and costs), the lender will typically work out the maximum amount they are prepared to offer using an average of the rates across the high, mid and low seasons.

Perhaps because of this uncertainty, it’s also not unusual for a lender to require the borrower to have a minimum personal income other than that from the rental property itself, to be sure that the borrower will be able to cover the repayments every month. Naturally, a Holiday Let property must not be used as your primary residence under the terms of the mortgage, no matter how attractive it may be, or how low the income from it is at certain times of the year. If you do wish to change use, you will need to change your mortgage.

While a holiday home will not be a permanent place of residence for either you or any potential tenants, and neither will it be a place of work, you are still entirely able to get a mortgage for the property. There are also no particularly unusual barriers. In essence, anyone can be considered for a mortgage for a holiday home, just as they would a Buy-to-Let property. As ever, your application and circumstances will simply need to meet the specific criteria set out by the relevant lenders for this area of their lending.

The main thing to remember is that, in most cases, if the current actual use or intended use of the property is as a Holiday Let, the type of mortgage you arrange with the lender will have subtle differences from that for a standard Buy-to-Let, and will have a few specific terms relevant to its Holiday Let status. Even if you intend to use the mortgaged property, or change the use of your home while still mortgaged, for letting via Airbnb, the same requirements will also invariably apply.

As well as an accurate definition of the property’s intended use, lenders will typically want to know more details about the anticipated rental income from it, the location and how easy it would be to sell as well as probable costs (you will need to consider the regular cleaning costs, maintenance and repairs, advertising, improvements and perhaps also agency fees if the property is managed by a third party). A holiday let is much more like a business proposition than simply an investment.

On the other hand, if you are purchasing the property to use as your own personal holiday home, then lenders will generally regard this as a second residential property mortgage. Therefore, your own personal income and expenditure will be taken into consideration as normal by lenders to gauge how much you can borrow instead of any rentable value.

Investing in a Holiday Let is a tempting proposition for many would be property investors with the potential high rental yields this type of let can command. Whilst the rent during the high and mid season can be exceptionally good especially when comparing to that which may be achieved on a standard tenancy, due to the slightly more complex nature of this type of rental, including possible higher levels on non occupancy, lenders’ criteria does become more specific to this sector.  Each and every lender will impose their own specific rules and Holiday Let mortgage criteria but in general terms, expect some of the following:

  • Applicants will need to own their own home
  • Minimum age 21
  • Minimum earned income (other than the subject property rent) £20000 pa
  • Max loan to be calculated using an average of the rental income for high, mid and low season rates
  • Minimum deposit 25%

As mentioned however, each and every lender will impose their own criteria so although the above can be used as an indication it is by no means a hard and fast list so, if interested it is certainly advisable to speak to a qualified holiday let mortgage expert.

Apart from the difference in how most lenders will calculate how much you can borrow for your mortgage, Holiday Let schemes will typically be regarded, for the purposes of underwriting and criteria, as that of a standard Buy-to-Let. That is, you will be renting the property out to tenants on a temporary basis, even though this will at no point be their fixed place of residence and they will not have the rights of someone calling the place their home.

With this in mind, if the property is used or intended to be used for a Holiday Let, the amount of deposit you will be expected to supply for a purchase will usually be a minimum 25% (giving you a 75% loan-to-value ratio for the mortgage). This said, some specialist lenders may possibly still be willing to consider loaning up to 85% of the property’s value (i.e. a deposit of 15%), although this will depend on other factors in your circumstances around the property and the loan.

If the property is simply to be used by yourselves as your own holiday property and not rented, then the mortgage will now be regarded as for a second residential property, and it’s likely that the amount of deposit required could be the customary 10%. As ever, everyone’s situation is unique, and there may be as-yet-unknown aspects to your holiday home purchase and its anticipated use that could affect a lender’s decision around the level of deposit.

As ever, the larger the deposit you are able to supply, then the better your deal is likely to be, and you may find that you are able to access schemes with more favourable interest rates and possibly gain more flexibility on other aspects of the loan. It’s always best to talk to an experienced Holiday Let mortgage adviser to go over all the details of your situation.

Knowing how much you can borrow for a Holiday Let can be a critical element of assessing the subject properties “value” to you as an investor.  As a Holiday Let will typically have a varied level of income throughout the year rather than a set monthly rent received from a standard single dwelling assured shorthold tenancy (AST), many lenders will assess how much you can borrow using a spread or average of the rentable value covering the high, mid and low season rates.  A stress rate will then be applied to the interest rate used for the calculation.  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

Using the calculation for the maximum loan when a 5 year fixed or more is taken this would give a maximum lend of £206,896 (subject to any maximum loan to value).

The Holiday Let Mortgage market is a relatively specialist area but as with most things, if you know what you are doing or have an expert to help things can be much easier especially when looking into the interest rate.  Due to the greater niche of this type of lending it does in turn give a much smaller pool of choice of lenders however this reduced choice does not necessarily mean inferior rates.  The interest rates available will invariable be on a par with those of standard buy to let rates and those available to you will be determined by factors such as:

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

The Holiday Let mortgage sector tends to be a very niche-market area, and does come with a reduced number of options for available lenders simply due to the perceived higher risk. There are two sides to this – that of the uncertain income, which may vary by more than anticipated during off-season months, and also that of the nature of the property’s occupation, where it is not being used as someone’s home and so therefore may be likely to be treated with less care, possibly resulting in unexpected damage.

However, having less choice in your providers for a Holiday Let mortgage does not necessarily mean inferior options. Although the range is very limited, some well-known and recognised names on the high street still entertain applications for Holiday Let loans, and tend to offer the more competitive rates, but you are also able to approach a number of smaller building societies and specialist lenders who offer mortgages for a Holiday Let property. It could be that the lender with the most attractive interest rates might not be the right one for your particular Holiday Let investment.

As with the residential market, every lender will have their own rules and criteria for applications, including 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 – checking all the secondary terms that may accompany a favourable interest rate – or look into using a specialist mortgage broker who can do this on your behalf and also access specialist lenders who do not deal with the general public, but who might have the right mortgage to meet your requirements

Holiday Lets will invariable come with a less stable income stream than your standard single dwelling assured shorthold tenancy (AST) and a higher potential risk of rental voids when the property is not let.  Due to this some investors will look at ways of offset this risk by keeping their contractual mortgage payments as low as possible.  With this in mind one question that is invariably asked is “Can I get an interest only mortgage for a holiday let?”  The answer to this is yes.  A Holiday Let mortgage can be arranged on the same basis as any other Buy to Let Mortgage that includes the option to have it set up on a pure interest only basis, a capital and interest or indeed a split of the two.  Do however please be aware that if any of the borrowing is arranged on an interest only basis it is your responsibility to arrange a repayment strategy.

With Holiday Let mortgages typically viewed as a more niche-market area of the mortgages sector, there are not so many lenders who include mortgages for this kind of property among their portfolio, so you will have less choice when it comes with who to deal with for your loan. In turn, this also means there is less competition, but this is balanced by the lower demand so, while they will carry a higher interest rate than a conventional residential mortgage, you will find Holiday Let mortgages are typically not any more expensive than a standard Buy-to-Let mortgage.

So, while the costs on paper might not be any more than you would expect as a landlord, you will still have to fulfil the specific mortgage lender’s criteria in order for them to grant you the loan. If, for whatever reason, you don’t meet all the requirements set out by those lenders with more favourable Holiday Let schemes, then you may possibly have to consider a more expensive loan just to get your business up and running. Depending on your circumstances and the terms of the loan, it should be possible to review the terms or switch to another mortgage when your deal is due for renewal when it comes to the end of its term.

Also worth bearing in mind is the fact that Holiday Let properties in peaceful, picturesque coastal or countryside areas will be more expensive than Buy-to-Let properties in towns and cities, so for that reason alone you may find you will need to take on a higher level of investment and a greater level of interest payments over the duration of the mortgage, simply because of the higher price.

However, as a Holiday Let is classed as a business for tax purposes, you will still be able to claim tax relief on your mortgage interest – a privilege that has now been reduced on Buy-to-Let properties. For a property to qualify as a Holiday Let in the eyes of the Inland Revenue, it must be furnished and available to let for at least 210 days (30 weeks) out of the year.

To make sure you’re getting the most favourable deal on your Holiday Let mortgage, and that this will represent the most suitable scheme for your needs over the duration of the loan and your planned ownership of the property, please get in touch with our team.

There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage.

Your property may be repossessed if you do not keep up repayments on your mortgage

Having a history of Bad Credit when being considered for any mortgage will likely have an impact. This could ultimately result in a decline or possibly for those who are approved offered with an inferior product due to the perceived higher risk to the lender.  It is however still possible to obtain a Holiday Let Mortgage with Bad Credit but, due to the very limited nature of the availability in the first place of these niche mortgage types it is typically that more difficult to find a suitable lender.

Many factors are still taken into consideration when applying for a mortgage and should you find yourself with a starting point in the knowledge that you have any Bad Credit, we strongly recommend speaking to a specialist Bad Credit Mortgage adviser with the experience of the Holiday Let Mortgage market who should be able to assist.

Obtaining a mortgage of any type can be a daunting experience for many however, add to this a much more specialist and exacting area such as Holiday Let Mortgages and this can truly feel impossible.  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 on the face of it 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 may not always be easily accessible. You can also add to this, that the criteria will vary from lender to lender and that finding the ones that you are eligible to use or who can assist you for your specific requirements is in itself a time consuming exercise.

In our opinion, speaking to a specialist Holiday Let Mortgage Broker is the best way to ensure you are given the most appropriate advise for your individual circumstances and requirements. In turn, this makes the whole process of arranging the finance a much easier and enjoyable experience.

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