Frequently Asked Questions
Letting out a holiday property to guests usually requires a holiday let mortgage. Although now well established in the UK, this type of niche mortgage still poses many questions.
Here we have tried to give answers to some of the most commonly asked questions concerning holiday cottage mortgages. If there are any mortgage questions you need further help with please contact us or why not check out our jargon buster.
There are a relatively small number of holiday let mortgage lenders and many of these also offer buy to let mortgages.
Leeds Building Society, Principality Building Society and Bath Building Society may be lenders that you recognise but there are many more that are less well known and some that will only accept mortgage applications via a mortgage broker.
To get the best choice you will need to approach an experienced whole of market holiday let mortgage broker such as ourselves. We have access the the best holiday let mortgages including broker only schemes and our own exclusives.
To buy a holiday home in the UK you will need a minimum deposit of 20-25% of the property value. This allows a mortgage of 75-80% LTV.
Should you be able to put in a larger deposit of 40% or more, lower interest rate options may be available to you.
Some lenders may ask for a higher deposit. The higher deposit reflects the higher risk as it is an investment property.
Continue reading about Holiday Let Mortgage Deposits
Mortgages for UK holiday lets are available from a good number of lenders.
There are 2 types of mortgage available. Which one you need will depend on how you wish to use the property:
- Holiday home with very occasional letting = Second home mortgage
- Holiday property that is mostly let out = Holiday let mortgage
You will need a minimum deposit of 25% for a holiday let mortgage, be able to prove your earnings and aged over 18. Most lenders prefer you to already own at least one UK property, but some will consider lending to first time holiday let buyers.
The type of property could influence both the choice of lenders and the cost of the mortgage. Each lender has their own lending rules that explain what is and what is not acceptable security for the holiday let property type, condition and location.
Our holiday let property guide explains more about acceptable property types and our Guide to Buying a Second Home runs through the process of buying a second home.
Holiday let mortgages are used to buy a residential property that is then let out to paying guests.
As an investment property the lender is very interested in the income, or potential income, that it can produce. It is this short term rental income that determines the maximum mortgage amount you can borrow.
In terms of deposit you will need a minimum of 25% of the purchase price/property value.
The borrower needs to have personal earned income of at least £20,000pa.
As with other mortgage types you will be able to choose the mortgage term, interest rate type and method of repayment.
Holiday rental mortgages are available for purchase or to remortgage.
For more information please read What is a Holiday Let Mortgage.
Overall, interest rates for holiday cottage mortgages are a little higher than residential mortgages, this simply reflects the lenders additional risk.
However, the potential rental income for a good holiday let more than compensates for the higher rates.
This very much depends on the lender and what other investment properties you may own. There’s no set amount but please call us to get a correct appraisal for your own circumstances.
No.
The two mortgage types and the property usage that the lender is agreeing to are very different.
Should you use a buy to let mortgage to purchase/refinance a holiday let you will be in breach of the mortgage conditions and the lender could request immediate repayment of the loan. It is also likely that your property insurance will be invalid.
If you currently have a buy to let property and wish to convert it into a holiday then this is possible. We may be able to gain your current lenders consent to this or alternatively remortgage to a holiday let mortgage lender.
The main differences between these two are in how the lender calculates the loan size and how they expect the property to be used.
The mortgage choices for repayment method and interest rate are the same.
HOLIDAY LET MORTGAGE
These allow you to purchase a residential property with the aim of letting it to paying guests on a short term basis. They do not allow anyone to occupy the property and use it as their main residence. The lender looks at the holiday rental income over the low, mid and high seasons to calculate the maximum loan.
BUY TO LET MORTGAGE
These also allow you to purchase a residential property but letting needs to be via an Assured Shorthold Tenancy (AST) where the tenants stay longer term. It will not allow holiday lets. The loan amount is determined by the AST income.
Holiday let remortgages are widely available with lenders available to go up to 75% LTV.
We can offer options for standard properties as well as multi-unit and mixed use properties.
The six month mortgage rule does apply to holiday let mortgages. Solutions are available, please let us know as soon as possible if this applies to you.
This is possible and many landlords have switched to holiday lets due to the much larger potential rental income.
From a mortgage perspective you have to do one of the following:
GAIN PERMISSION FROM YOUR CURRENT LENDER
Your current loan is likely to be on a residential or buy to let basis. We can approach your lender with details of the proposed usage and rental income and request a consent to let. This is their permission to let the property.
Some lenders don’t operate in this market and may just say no. Others may stipulate a fixed period of time only.
The lenders will want to change (increase) the interest rate charged to reflect the change of use and also the increase in risk.
REMORTGAGE TO A HOLIDAY LET LENDER
This may be a slower option but it will have a more predictable outcome as we will only choose a lender that will want to lend to you! Depending on your current lender this might be the preferred route as the overall outcome will be simpler and possibly cheaper.
The switch will be the usual remortgage process so: property valuation, legal involvement etc
Stamp Duty is a government tax that you may have to pay if you buy a residential property in England or Northern Ireland.
Homeowners will pay stamp duty on a tiered basis that is based on the property purchase price. In addition, residential property investors have to pay an extra charge of 3%.
So if you purchase a buy to let or holiday let property you will pay the standard rate plus the second property levy.
Read more – www.gov.uk/stamp-duty-land-tax
Usually the minimum earned income should be £25,000, not including investment income. Proof of this income will be needed, acceptable prove is P60, accounts, bank statements, SA302’s. The mortgage amount will be calculated using the rental income.
Mortgages are available if you are self-employed, but there’s generally more documents needed to backup your income.
You may like to read more about income requirements and criteria: Holiday Let Mortgage Criteria.
Using an SPV (Special Purpose Vehicle) or Limited Company to purchase holiday lets is now commonplace.
There’s a bit more work involved and the setup of the SPV and deposits has to be just right. Our experienced brokers will guide you through the best way to structure your application.
Applications can be accepted from:
- Individuals
- Partnerships
- Limited Companies
- SPV Companies
- Trusts
It is normal for lenders to ask the Company Directors of an SPV for personal guarantees to cover the mortgage.
You may like to read more about Holiday Let Mortgages for Limited Companies.
One of the advantages of a furnished holiday let is that you are able use it for your own holidays.
BUT YOU CANNOT LIVE IN IT PERMANENTLY.
It is an investment property that cannot be permanently occupied.
It is mainly the mortgage lender that applies this restriction but there may also be covenants restricting how the holiday cottage can be used.
However, you may at some point in the future decide that you want to live in your holiday home permanently. This should be possible with either the lender’s consent or by changing the mortgage/paying it off.
Properties that qualified as a furnished holiday let (FHL) could obtain favourable tax breaks from HMRC. This status is being abolished with effect from April 2025, meaning that the tax status of all holiday lets is the same as a buy to let.
Yes some lenders will accept Airbnb.
The type of mortgage you need for Airbnb, and therefore the lender we approach for this, will depend on how you intend to let Airbnb guests use the house.
- Rent a room only
- Occasionally rent the whole house
- Regularly rent the whole house
Airbnb Mortgages are increasing in popularity as homeowners and investors see how many leads and bookings they can generate.
Please contact us with any specific requirements prior to making an offer.
You do not need to use a letting agent. However, if you live a distance from your holiday let or have limited time then an agent will definitely help.
These are just a few tasks that need to be managed:
- Marketing to generate enquiries and bookings
- Someone to deal with the bookings, payments etc
- Checking in
- Guest problems or requests during a stay
- Checking out
- Cleaning
- Emergencies – Burst pipes etc
- Maintenance – Property and outside space/garden
Mortgage lenders will feel more comfortable about your application if they can see that professional agents will be employed to market the property and to look after it. However, you do not have to take this route.
An interest only holiday let mortgage is normally possible but you will need to advise the lender how you eventually intend to pay their money back!
Yes, development finance is available for holiday lets. These can be for conventional residential homes or annexes and conversions.
It’s important to work with a lender who is experienced with holiday let development finance. As well as money, they can also provide additional expert guidance and advice.
The lenders that we work with will calculate the loan size from the holiday letting rental income. Other lenders will take the buy to let/AST income and this produces a smaller mortgage.
Confirmation from a holiday letting agent is normally preferred and the lender will take an average, recognising the seasonality of holiday lets.
If after this the mortgage offered is less than you need we do have access to lenders who will then assess your personal income situation to ‘top-up’ the mortgage amount.
Expats are catered for if they wish to invest in a holiday let property. Expat holiday let mortgages are available from a small number of lenders, and we can also provide finance where an SPV limited company is needed.
Over the past few years the treatment of the mortgage interest for a buy to let has changed, so that landlords can no longer offset the full amount of mortgage interest from their BTL income.
Holiday lets were unaffected. This meant that providing that your property could qualify as a Furnished Holiday Let (FHL), you would benefit from the special taxation rules for this category of investment.
The FHL status will be abolished in April 2025. Meaning that holiday lets and buy to lets will be taxed and treated equally.
It is not necessary to use a holiday let mortgage broker as some lenders do accept mortgage applications direct from new clients.
However, a mortgage broker can help you in so many different ways:
- Source the best holiday let mortgage for you
- Give access to lenders that do not deal directly with new clients
- Give access to commercial and specialist lenders
- Help to get all of your paperwork in order before applying
- Explain the importance of tax advice and holiday let insurance
- Provide guidance on how to set up your purchase: personal, joint, SPV
- Strategies to overcome problems with usage, land registry titles, planning etc
- Assist with the mortgage application and associated paperwork
- Keep upto date and chase the processing with the lender
- Review your mortgage when the initial product term ends (remortgage)
- Save you lots of time!