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.
- 1 Who offers holiday let mortgages?
- 2 How much deposit do I need?
- 3 Can you get a mortgage for a holiday property?
- 4 How do buy to holiday let mortgages work?
- 5 Are holiday cottage mortgages more expensive?
- 6 How many holiday home mortgages can you have?
- 7 Can I use a buy to let mortgage instead?
- 8 What’s the difference between buy to let mortgages and holiday let mortgages?
- 9 Can I turn a buy to let into a holiday let?
- 10 Do you pay stamp duty on a holiday let?
- 11 How much income do I need to prove?
- 12 Can an SPV Limited Company get a mortgage?
- 13 Can I live in my holiday let?
- 14 What qualifies as a furnished holiday let?
- 15 Can I get an Airbnb mortgage?
- 16 Do I need to use a holiday letting agent?
- 17 Does a holiday let need an EICR?
- 18 Can I have an interest only mortgage?
- 19 How is a holiday let mortgage calculated?
- 20 What are the tax benefits?
- 21 Do I need to use a mortgage broker?
Who offers holiday let mortgages?
There are a relatively small number of mortgage lenders and building societies that provide for holiday lets and some 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 mortgage broker such as ourselves.
How much deposit do I need?
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%.
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
Can you get a mortgage for a holiday property?
Mortgages for UK holiday lets are gradually becoming more commonplace and this encourages more lenders to offer these loans.
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.
How do buy to holiday let mortgages work?
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 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.
Mortgages for holiday lets are available for purchase or to remortgage.
For more information please read What is a Holiday Let Mortgage.
Are holiday cottage mortgages more expensive?
How many holiday home mortgages can you have?
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.
Can I use a buy to let mortgage instead?
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.
What’s the difference between buy to let mortgages and holiday let mortgages?
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.
Can I turn a buy to let into a holiday let?
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
Do you pay stamp duty on a holiday let?
Stamp Duty is a government tax that you have to pay if you buy a residential property that costs more than £125,000 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
How much income do I need to prove?
Usually the minimum earned income should be £20,000, not including investment income. The mortgage amount will be calculated using the rental income.
You may like to read more about income requirements and criteria: Holiday Let Mortgage Criteria.
Can an SPV Limited Company get a mortgage?
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:
- Limited Companies
- SPV Companies
Can I live in my holiday let?
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.
What qualifies as a furnished holiday let?
To make sure your property qualifies as a furnished holiday letting (FHL), it must be: in the UK or EEA furnished available for commercial letting to the public, as holiday accommodation, for at least 210 days a year, commercially let as holiday accommodation for at least 105 days a year – the rent must be charged at market rate and not at cheap rates to friends and family, and a short term letting of no more than 31 days.
You can read more about the FHL tax rules here – Furnished Holiday Let Tax
Can I get an Airbnb mortgage?
Yes some lenders will accept Airbnb.
The type of mortgage you need, 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.
Do I need to use a holiday letting agent?
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
- 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.
Does a holiday let need an EICR?
Electrical safety regulations for private landlords came into force on 1st June 2020. Privately rented properties must have a valid EICR (Electrical Installation Condition Report) by 1st April 2021.
From 1 April 2021 the Regulations apply in all cases where a private tenant has a right to occupy a property as their only or main residence and pays rent. This includes assured shorthold tenancies and licences to occupy.
As a holiday let is not a main residence, or someone’s only residence, then it is our current view that these regulations do not specifically include holiday lets.
However, you are required by law to make sure that your electrical installation and all appliances are safe to use. You may of course voluntarily decide to fully comply with the new regs.
More information can be found on gov.uk – Guide for landlords: electrical safety standards in the private rented sector
Can I have an interest only mortgage?
This is normally possible but you will need to advise the lender how you eventually intend to pay their money back!
How is a holiday let mortgage calculated?
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.
What are the tax benefits?
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 remain unaffected.
Providing that your property can qualify as a Furnished Holiday Let (FHL) then you will benefit from the special taxations rules for this category of investment.
The different tax benefits are wide-ranging but it will mean that all of your property expenses, including the mortgage interest, can be deducted before assess for tax/profit.
Do I need to use a mortgage broker?
It is not necessary to use a mortgage broker as some lenders do accept holiday let 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!
Speak to an expert about HOLIDAY LET mortgages
We have been helping clients with their holiday lets since 2006 and our brokers have the widest possible experience in this sector. A holiday let mortgage will allow you to purchase a property that will be let out to paying holidaymakers, whilst also allowing you to personally use it as a holiday home each year.
Every one of our clients has a unique need and our brokers love a challenge. So, even if your situation is not ‘the norm’, we can usually help.
Call 020 8301 7930 to start your journey with us.