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.