Holiday let mortgages – Best deals, lenders and criteria for UK holiday lets
More people are exploring how to rent their properties to holidaymakers, thanks partly to the success of Airbnb and other holiday accommodation property-letting websites.
There are two options when it comes to a holiday mortgage. You can either buy a home you intend to let out occasionally or purchase a second house to rent it out to holidaymakers more often.
Is it easy to get a mortgage on a holiday let?
The first mortgage is more straightforward to arrange than the second because it’s similar in structure to a standard mortgage. However, there are mortgage providers who will be able to approve a second mortgage.
Each mortgage broker can provide the right advice and answer any questions about holiday buy-to-let mortgages.
We answer questions about interest rates, deposit requirements, and one everyone is talking about: How profitable are buy-to-let vacation homes?
You can save your time, effort, and money by skipping the reading and calling today or making an enquiry online instead.
We will match you with one of our whole-of-market broker partners. They’ll be happy to answer any questions you have and find the right mortgage solution at the best price for you.
Criteria for holiday mortgages
A holiday mortgage is the best option for those who want to purchase a property to let out to holidaymakers. This mortgage is only available through specialist lenders who meet specific criteria. The type of holiday loan mortgage you get will depend on whether you buy in the UK or overseas.
These are some of the criteria you might be expected to meet:
- Minimum income Some lenders will require between £10,000 and £25,000, while other lenders may ask for £40,000. This income must be from rental income and not other sources.
- Loan Size: Many providers won’t take less than £40k for individual properties or more than £1m.
- Loan to Value (LTV), A 25% deposit is required, giving you 75% LTV.
- Applicants Some lenders require applicants to be at least 21 years old. Some lenders don’t have a minimum age, while others need that applicants be at least 21 years old. Others set a limit of 85. Many lenders require that applicants be existing owner-occupiers.
- Maximum portfolio size Some providers may have 3, 4, or 10 properties that they mortgage to the Society. For example, they could have a combined maximum worth of £3m
- Rent coverage: Some lenders require at least 140% of mortgage interest payments based on the initial stress ratio
Can I use a regular mortgage to get a holiday rental?
The UK holiday mortgage is very similar to a regular mortgage. However, it is not the same. You would not usually be allowed to use a standard residential mortgage to rent out the property as holiday lets.
If you have a mortgage on your house, the holiday let mortgage could be considered a second mortgage if you intend to live in the property half the time and not let it out. This will result in restrictions regarding who can stay and how often you are allowed to be there.
Some lenders will allow you to rent the holiday home for up to 18 weeks per year if you are solely using it. It may be possible to get a standard mortgage in this situation.
Can I get a mortgage to buy a holiday home?
In almost all cases, you can’t use a standard “buy to let” mortgage. A “buy to holiday rent mortgage” is often treated as a business loan and let to temporary visitors. Most Buy to Let lenders require that the property be let to tenants under an assured tenancy agreement.
The best buy-to-let mortgage broker can assess your situation, have access to all the market and have experience in regularly arranging holiday mortgages.
Send an enquiry, and we’ll refer you to the best person to help you.
Mortgage rates for holiday lets
The best holiday mortgages may have higher rates than standard mortgages due to the fact that it is a niche market with less competition and a slightly higher perceived risk.
Many factors affect the rate you qualify for.
- The deposit amount (the higher, the better).
- The rental income that you can expect
- Your credit history
- Your income and your age
- The property type (the better, the more standard).
- Other factors
One of our mortgage advisors can help you find the best holiday mortgage rates.
Holiday lets interest-only mortgages
Some lenders offer interest-only mortgages for holiday lets. Depending on your financial situation, these products might be better suited to your needs. It will also depend on whether you intend to live in the property or rent it out.
If you are interested in letting the property.
Lenders will consider the loan on an interest-only basis if you intend to let the property and use a buy-to-holiday mortgage. There is no need to have any other repayment strategy.
What is the minimum deposit required to rent a holiday home?
Deposits can differ between a holiday rental to be run as a business and a home you are renting out to yourself. Most lenders require a 25% deposit for letting and a 15% deposit for your use. Some lenders can accept as little as 15% to let property or 10% for a second-home holiday let.
What is the maximum amount I can borrow for a Holiday Let mortgage?
There are no Holiday mortgage calculators. However, affordability will vary depending on whether you intend to rent the property as a business or live there exclusively.
Renting the property out will allow you to be affordable
These mortgages are usually arranged as a buy-to-let mortgage and are calculated using the rental income for the property.
If you plan to rent the property out, your income can be lower in other seasons.
Lenders will look at rental income for the entire year to assess affordability. This is a good idea for budgeting since the mortgage payments will likely be constant throughout the year.
For specialist mortgages and lenders, your annual rental income may be as high as 170% (£850).
It can vary from lender to lender, depending on whether you are a higher rate taxpayer or if the property is wrapped in an Ltd company wrapper.
Lenders may allow landlords to use their personal income to pay the rent if the rental does not cover the cost. This is called top cutting. Lenders almost always require applicants to have their income. Some place minimum limits at £20-30k per year, while others do not.
The real question is: Could you afford the holiday mortgage to buy-to-let if it were only rented for one month? Or not let at all. These are all critical considerations. You can see why finding the best holiday mortgage deal is essential.
If the holiday home is right for you, affordability
Mortgage affordability is different if you live in a holiday home. It is determined based on your income and expenses.
Lenders need proof that you can afford the mortgage and any other loans, mortgages, or credit card obligations. Most lenders will only lend up to 4x your annual income. Some lenders will lend up to 5x and some up to 6x, depending on the circumstances.
The calculation of holiday mortgage affordability can become more complicated if you are a professional landlord, self-employed, or in another capacity. Also, proving sufficient income can be more difficult as different lenders have different policies on acceptable trading styles, time trading and accounting figures.
Some lenders specialise in holiday mortgages for self-employed individuals. Enquire, and one of our experts will provide you with the right advice.
Is there a better place to rent a holiday home?
Other factors affecting your decision about where to buy a holiday home including how popular it is with tourists, who will take care of the property, and the maintenance cost.
Your pricing policy, type and location of your home, and seasonal demand will all impact the amount of income you can generate.
Notification
If your net rent is £10,000 and the property is £200,000, the yield would be 10,000/200,000. This equals 0.05×100 = 5% yield.
It is worth noting that the average occupancy is 21 weeks. However, more popular areas have an occupancy of 24 weeks. A holiday home in Lake District can take up to 40+ weeks.
One of the most desired features to increase revenue is –
- Weather
- Localisation
- Local amenities (Pubs, restaurants, attractions etc.)
- Open fireplace
- Swimming pool
- Hot tub
- Sea/water views
- Within 5 Miles of the Beach
- Internet
- Dog friendly
Are there different criteria for mortgages to holiday lets in Northern Ireland and Scotland?
Every lender is different. Each lender will have different criteria based on your financial situation, like income, deposit, and credit history.
You should speak to one of our advisors who are experts in holiday let mortgages, both in Scotland and mortgages for Northern Ireland.
Rent-to-let landlords are now moving into Airbnb
A good tip is to talk to a local holiday agent about the assessment of rental rates in your area before you purchase a holiday home. You can also use Airbnb to see what rents are being asked for in similar properties.
Airbnb was established in 2008 and has been a great help to landlords who own holiday properties. Airbnb offers an online booking platform for those looking for short-term holiday homes, cottages, and apartments.
Your holiday buy-to-let or holiday rental could be easily advertised on Airbnb. Learn more about Airbnb mortgages.
You will get more bookings if the area is more popular. So, where you buy your holiday home in the UK should be considered.
A mortgage can be obtained for a unique holiday property.
The holiday mortgage criteria dictate that the property must be of standard construction. So a yurt or treehouse you are interested in will probably not impress holiday mortgage lenders.
The standard construction is brick with a tile or slate roof. Lenders will generally approve this construction if it’s in good condition. Lenders are available to lend concrete, Timber or Steel Frame property. There are many variations of this property. The buyer must be assessed individually before a valuer can determine if it is suitable for lending.
You will get the most out of your holiday home if you run it like a business. This means you need to advertise the property, take care of your guests, clean the house, and make necessary maintenance.
Are there different criteria for mortgages on holiday homes?
Although each lender differs, the cottage criteria are the same as any other standard construction property. All lenders will consider them as long as there’s no thatched roof.
Sometimes, buildings with unusual or non-standard structures may require a specialist mortgage lender because some lenders consider higher risk.
Talk to one of our expert brokers to find the right mortgage solution for you at the best price. They will consider all your factors.
Send an enquiry to receive a no-obligation, free chat.
Is the holiday rental required to be furnished to qualify for a mortgage?
Yes. Most lenders will require that a holiday rental be furnished to qualify for a mortgage.
Tax on holidays lets
Tax benefits for landlords initially drove the boom in ‘buy to rent. However, the government has dramatically changed the market through legislation reducing these tax advantages. Despite this, many still see significant gains.
Holiday mortgage vs Buy-to-let
These new laws won’t affect many holiday homes that are Furnished Holiday Lets (FHLs), so you can still enjoy tax breaks for your holiday home or buy-and-leave property subject to certain conditions.
For tax purposes, there are strict requirements that must be met. It must be available for at most 210 days per year and let out for at least 105 days.
You could be able to claim expenses like maintenance or your holiday let mortgage interest against rental revenue. A tax advisor or accountant should be able to provide more details.
If your primary purpose for purchasing a holiday home is to take annual family holidays, then you should also make it a place you love to return to time and again.
Talk to a mortgage expert for holiday lets.
Our mortgage brokers are available to answer your questions or to provide advice. Enquire here today to begin.
Relax, and let us find the right broker for you. We do not charge any fees, and you are under no obligation to proceed.