A holiday let mortgage will allow you to purchase or remortgage a UK property and then let it out as a holiday let to paying guests. It could be used as a holiday let or airbnb but cannot be used for tenants to live in long term.
This is a specific type of mortgage offered by only a small number of lenders. The ‘let’ part is very important. When looking at the mortgage criteria the holiday let lenders need to see how the property will be let and what the possible (or actual) income will be.
Mortgages offered on a holiday let basis contain clauses specific to the business of holiday letting. So, as an example, the mortgage offers will contain a clause disallowing any form of long term letting on an Assured Shorthold Tenancy (AST) basis.
Table of Contents
- 1 Can I use a buy to let mortgage instead?
- 2 Holiday let mortgage lending criteria
- 3 How much can I borrow?
- 4 What are the repayment options?
- 5 What choice of interest rates is there?
- 6 What’s the tax situation?
- 7 How much will a holiday let mortgage cost?
- 8 What properties are suitable?
- 9 What kind of mortgage do you need for Airbnb?
- 10 Who offers holiday let mortgages?
- 11 What’s the difference between a buy to holiday let and a buy to let mortgage?
Can I use a buy to let mortgage instead?
At a basic level a buy to let mortgage is very similar to a holiday let mortgage. For both, the amount you can borrow is dependent on the achievable rent.
Mortgage lenders will expect any property to be used and occupied within the terms of their mortgage. A buy to let mortgage allows tenants to occupy and live in the property as their primary residence for the long term. This will require an Assured Shorthold Tenancy (AST) agreement. It will, therefore, not permit the use as a short term holiday let.
If a property financed with a buy to let mortgage is used as a holiday let then this will infringe the mortgage agreement and is also likely to make any property insurance void.
If aware, the lender could require full settlement of the mortgage.
Holiday let mortgage lending criteria
There are a relatively small number of holiday let mortgage lenders. The majority of lenders prefer applicants to be UK residents over 21 who are in stable employment or self-employment.
The proposed mortgage will be assessed on the property, the applicant and the short term rental income from holiday letting.
Read more on holiday let mortgage criteria.
How much can I borrow?
The amount you can borrow for a holiday let will be primarily determined by the holiday letting rental income. Lenders will require confirmation of the achievable rent from an experienced holiday letting agent who should split the income between the seasons.
If the rental cover calculation shows a shortfall in the amount of mortgage offered some lenders will look to any excess personal income for further justification.
Remember that a larger holiday rental mortgage will affect the property’s viability/profitability as an investment as your monthly outgoings are higher.
What’s the tax situation?
When done correctly a UK holiday let can be classed as a Furnished Holiday Let by HMRC.
This will mean that your furnished holiday let is classed as a business and so property expenses are fully deductible from income. Unlike personally owned buy to lets, mortgage interest payments are fully deductible.
To qualify as a UK furnished holiday let (FHL) the property should be available for letting as furnished holiday accommodation for at least 210 days per year. You must let the property commercially as furnished holiday accommodation to paying guests for at least 105 days in the year.
FHL status is quite complex so you may like to read What is a Furnished Holiday Let?
How much will a holiday let mortgage cost?
As with a normal mortgage you can remortgage a holiday let and switch to a better interest rate or to raise capital.
What properties are suitable?
In principle most types of property are acceptable. However, the location and type of property you choose may affect your ability to get a holiday let mortgage.
Holiday lets will often have local authority restrictions placed on them which determine how they can and cannot be used. Mortgages for Airbnb properties are now available, recognising the changing marketplace.
There is a growing demand for holiday lets but it is vital for this information to be fully investigated prior to purchase. Not only will these restrictions affect what you can do with the property, it will also reduce the number of lenders available.
Log cabins and timber lodges/houses are not acceptable due to their construction and lack of freehold status.
What kind of mortgage do you need for Airbnb?
It is important to understand the type of mortgage you need for your property. With more and more people turning to short term rental services like Airbnb, there are several considerations when it comes to financing an investment property.
Generally speaking, a holiday let mortgage is normally required for airbnb. Our article What kind of mortgage do you need for Airbnb? covers this in more detail.
Who offers holiday let mortgages?
There are around 20 lenders in the UK offering these types of loans. A combination of building societies and specialist lenders. To find the best holiday let mortgage you need access to the whole lending market. An independent holiday let mortgage broker, like ourselves, can give you maximum choice.
What’s the difference between a buy to holiday let and a buy to let mortgage?
There is often some confusion between the two types of mortgage and this situation is not helped by some lenders calling their holiday let products “buy to holiday let mortgages or holiday buy to let mortgages”
Both mortgages do allow the property to be let out. However, it’s the letting duration and type of guests which are the differences.
A BTL mortgage, is designed to allow applicants the opportunity to purchase or refinance properties that will be let to tenants, on a long-term basis, usually subject to an agreement called an “Assured Shorthold Tenancy” (AST). This type of tenancy creates statutory rights and obligations between the parties, with the borrower/property owner being known as a Landlord.
The owner of a holiday let is not considered a landlord in Law.
Holiday letting is classed as a business by HMRC. The mortgages are designed for properties that will be let on a seasonal and temporary basis to guests. The income from a holiday let property will fluctuate, according to seasonal variations. Therefore, in most cases, affordability for a buy to holiday let mortgage, is assessed against the low, medium and high season accommodation rates for a given area, before a ratio is applied.
If you already own a buy to let property and wish to switch to holiday letting you will need to request your lenders permission. This is known as ‘consent to let‘ but this typically lasts for a fixed period of 6-12 months. A permanent solution would be a holiday let remortgage to change the mortgage type.
- About the Author
- More by this Author
Mark has worked in financial services since 1995, initially as a Financial Adviser and then a Compliance Officer.
He has been a Senior Holiday Let Mortgage specialist at Drake Mortgages since 2001. He is often quoted on lenders websites and can be found in the press, talking about holiday let and available finance.
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.