What are Holiday let mortgages?

A holiday let mortgage is a mortgage for a holiday property which the owner now wants to let out to generate income for a short term.

In some cases, the holiday let yields may be greater than what is available on the buy to let market.

Holiday let mortgages will naturally have a higher rate of interest than a standard repayment mortgage.

How do holiday let mortgages work?

Holiday let mortgages work by giving you lending to buy a holiday that you want to rent out on a short term basis as a business. The difference between holiday let mortgages and buy to let mortgages is that buy to let mortgages lend to you on properties you want to rent out on a long term basis.

Holiday let mortgages are also different from holiday home mortgages as holiday home mortgages are for second properties you want to buy in which you will live in during holiday.

Eligibility requirements for a holiday let mortgage

Most holiday let mortgage lenders will only lend to borrowers who meet the eligibility requirements below:

  • Have a suitable holiday let insurance
  • Have at least a 30% mortgage deposit so the holiday mortgage lender will only need to provide up to an 70% loan to value
  • Most holiday let mortgage lenders may only lend to people with relatively good credit scores and no negative marks such as bankruptcy CCJs, IVAs etc.
  • Be at least 18 years of age and most holiday let mortgage lenders will not place an age limit in which they will not lend beyond.
  • Some holiday let mortgages will be able to offer first charge mortgages as well as second charge mortgages.
  • Most holiday let mortgage lenders will lend up to a maximum of £2m and may even lend as low as £5k.
  • Most holiday let mortgage lenders will offer interest only holiday let repayment mortgages as well as a standard repayment mortgage
  • As with residential mortgages, you will be able to get fixed rate mortgages for an introductory term with a holiday let mortgage. This could be 2, 3 or 5 years.
  • If the holiday let home requires planning permission then some mortgage lenders may require you have this in place before they will lend to you.
  • If your holiday let property is a leasehold property then you will need to get written permission from the freeholder before you get a holiday let mortgage. This may be the requirements of some holiday let mortgage lenders.
  • If your first charge mortgage]() is a residential mortgage then you may also need to get permission from your first charge mortgage lender so you are not in breach of your residential mortgage agreement. This may also be a requirement of your holiday let mortgage lender.
  • Most holiday let mortgage lenders may insist that the rental income covers at least 125% of the secured lending repayments on the property each month. So this means your your first charge mortgage if you have one and your holiday lets mortgage must be 25% less than your rental income in total per month.
  • The mortgage lender will check your income to ensure you will be able to cover the monthly repayments on the holiday let mortgage when it isn’t being rented out.

What sort of properties will holiday let mortgage lenders lend to?

holiday homes and cottagesnormal houses, ex-council houses, flats and maisonetteshigh-rise properties (yes, even ones above 6 floors)properties with poor valuations (when the property is in a less than perfect condition)non-standard constructions (when the property is a little out of the ordinary)normal brick-built houses, flats and maisonettes.

The difference between holiday let mortgages and buy to let mortgages?Holiday let mortgages seem to generate more yield than buy to let mortgages and they are treated differently by HMRC if they are furnished.Holiday let homes are classed as a business and this means you can claim tax relief on mortgage interest unlike buy to let homes.For a property to count as a holiday let, rather than a buy-to-let, it must be available for letting as furnished holiday accommodation for at least 210 days per year.That means you can still reside and enjoy your holiday let home for 22 weeks out of the year.

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

Most holiday let mortgage lenders will require a 30% mortgage deposit before they will lend to you on a holiday lets home. The mortgage deposit requirement on a holiday let home is much higher as there is much more risk involved for the mortgage lender.Most people may consider remortgaging their current properties to release some of the equity in their homes to use and finance a holiday lets mortgage deposit.

Can I get a mortgage for a holiday let?

Yes, you can get a mortgage for a short term holiday let. These are known as holiday let mortgages.

Are holiday lets a good investment?

Holiday let homes may be a good investment based on your personal circumstances. The interest rates on holiday let mortgages can go from 2% to anywhere above 6% but remember you will be able to offset your mortgage interest against any rental income for tax purposes.

Holiday let mortgages may need a specialist mortgage broker as they are a niche area of the mortgage market.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.