If you are considering purchasing an investment property, you will need to decide on the style of letting.
In this article we look at the main differences between a UK holiday let and a buy to let. Both can be excellent property investments but it’s important to understand how they work before making a final decision.
Just because they both involve letting does not mean that they are alike; in fact the word “let” is possibly the only similarity!
Holiday let mortgages explained
A holiday let mortgage is needed where the property is to be let out for short durations only. This could be for just 2-3 days or 2-3 weeks.
It’s important to separate a holiday let from a serviced accommodation property.
While these are also used for shorter term lets, the lets can last for several months at a time. A useful accommodation solution for contract workers or anyone working away from their normal work base.
Although very similar to a holiday let, they will need to be financed by a serviced accommodation mortgage, where the lender is aware of the tenancy arrangements.
So a holiday let is used by guests staying for a few days, or perhaps a weekend, and longer holidays of upto 2-3 weeks.
The rent is expressed as a weekly amount, and this will change according to the seasonal demand over the course of a year.
The properties need to be of a high standard, and in an area of demand according to the rental style. This will be confirmed by a local letting agent.
A 25% deposit is the minimum amount required for a holiday let mortgage. The amount you can borrow will be based upon the proposed rental income (average) and will be affected by your own financial affordability.
Short lets only
Must be fully furnished
High quality property
Average rent used
Buy to let mortgages explained
A buy to let mortgage is required for a residential property that is to be let out to long-term tenants, using an AST.
The tenants will occupy the property as their own home and pay the utilities and register for council tax etc.
The rent payable will be the same each month, for the duration of the letting agreement. The property can be furnished or unfurnished.
A 25% deposit is the minimum amount required for a buy to let mortgage. The mortgage amount will be based on the monthly gross rental income.
AST lets only
Furnished or unfurnished
Habitable property
Monthly rent used
Holiday let vs Buy to let
There’s an awful lot of similarities between these two, after all they are both investment properties that are used to generate rental income. But when you start to drill down to the detail, the differences become more apparent.
In no particular order:
Letting style
Holiday let
A short stay, with full payment upfront. The guests have no rights to claim the property as their home and must vacate at the end of the stay.
Buy to let
The tenants will occupy the property as their main residence. Usually a formal letting agreement called an Assured Shorthold Tenancy (AST) will be used.
Letting duration
Holiday let
Guests can only stay for short durations, as appropriate for a short break or holiday. A few days or a few weeks
Buy to let
The AST will determine the duration, either 6 months or 12 months is usual to begin with. However, as the tenants will make this their home, many of them will occupy the property for years to come.
property
Holiday let
The property must be in an area that the lender agrees is suitable for a holiday let. Where the demand is high enough, throughout the year. It must be in excellent physical condition and fully furnished to a high standard.
Properties that have Section 106 occupancy restrictions can be financed as a holiday let.
Buy to let
Buy to let properties can be all sorts of shapes and sizes, with variable options for location. They can be offered as fully furnished, or unfurnished.
What is not suitable for a holiday let is fine for a buy to let; flat above a shop, house tucked at the back of a shopping centre, all fine.
rental income
Holiday let
Confirmation of the actual or proposed income will be needed from a recognised holiday letting agent.
This will be broken down over the year into high, medium and low seasons. An average will be used to determine the loan size.
Buy to let
The monthly AST income will be confirmed or determined by the lenders valuer when conducting a mortgage valuation. Although many times this will be a ‘desk top’ valuation, where no physical visit takes place. The gross income will be used to calculate the loan size.
Try our Buy To Let Mortgage Calculator.
tax
Holiday let
Up to April 2025 holiday lets had the opportunity to qualify as a furnished holiday let (FHL) which opened the doors to some favourable tax treatment.
The UK government has abolished the FHL status, thus removing all of the FHL benefits.
You may be financially better off by holding properties within an SPV Limited Company. (Check with your accountant)
Buy to let
There’s no special dispensations for a buy to let, in fact the government has been squeezing landlords over the last few years. The gross rental income will be used to determine your rate of income tax, along with your other income.
You can’t fully offset the mortgage interest and any gains on sale are assessed under Capital Gains Tax (CGT) rules.
You may be financially better off by holding properties within an SPV Limited Company. (Check with your accountant)
mortgage availability
Holiday let
The available lenders still tend to be building societies, often regional ones, and smaller banks or specialist lenders. Many lenders prefer to work with mortgage brokers, rather than dealing with borrowers directly.
Interest only or full repayment is available, with a range of fixed and variable interest rates. 25% deposit is required.
Buy to let
Buy to let mortgages are widely available as this market is so well established. Large, small, direct and specialist lenders are all offering BTL products.
Interest only or full repayment is available, with a range of fixed and variable interest rates. 25% deposit is required.
personal use
Holiday let
The majority of holiday cottage mortgage lenders will expect, and allow, you to use the property yourself over the course of each year. This must be incidental usage only, for you and your family. A nice little perk!
Buy to let
You are not permitted to occupy or stay in the property for any period.
using a limited company
Holiday let
Limited Companies and Special Purpose Vehicles (SPV) are able to own a holiday let property financed with a mortgage.
Since the removal of FHL status, there’s a growing trend for property investors to use a limited company.
Buy to let
It is possible for an SPV company to buy and hold investment properties such as a buy to let.
Where the purchase involves a mortgage, the mortgage application needs to be from the actual company, so it matches the ownership.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
Can you convert a buy to let mortgage to holiday let?
Yes this is possible. And you can also go from holiday let to buy to let.
There’s two ways of achieving this:
- Changing the type of mortgage you have with your current lender (if they offer it)
- Remortgaging over to a new lender
Bear in mind, with both of these options you are effectively applying for a new mortgage, with all of the checks and criteria stipulations that comes with it.
Which one is better?
They are different styles of property investment, so we wouldn’t say that one is better than the other.
A buy to let offers a simple route to property investment, with the opportunity to receive monthly rent without any input.
A holiday let requires a lot more work to operate but the potential income and profit is much higher.
What if I don’t tell my lender?
There will undoubtedly be many people that are using their property in a way that has not been disclosed to the lender.
We would not recommend doing this.
Each mortgage type allows a certain style of occupation and letting. If you try to get a BTL loan for a holiday let, not only will you be deceiving the lender, you also won’t be able to borrow as much money.
Where a lender becomes aware of this issue, you will be in breach of your mortgage agreement. It’s possible for them to demand immediate and full repayment of the mortgage.
How to get the best deal
To get the best deal you will need access to as many mortgage products as possible, with inside knowledge about how lenders work and how to qualify for a great deal.
A whole of market mortgage broker can give you access to the widest possible range of mortgage options. This will include specialist lenders and broker-only deals.
For a regular buy to let there will be many opportunities to apply direct with a lender, and if your circumstances are fairly straightforward, then this should be OK. Although you won’t know if you have chosen the best deal.
When you bring in an SPV limited company, or the need to fund a holiday let, then a broker will almost always be necessary and will add huge amounts of value.
FREQUENTLY ASKED QUESTIONS
What about Airbnb properties?
Mortgages are available for Airbnb properties. Which type of mortgage you need will depend on the style of letting, this will be between a holiday let or serviced accommodation.
Can expats get these mortgages?
You can get expat mortgages and expat remortgages for residential, buy-to-let and holiday let properties. We would always suggest working with an experienced expat mortgage broker in these cases.
Can I live in my holiday let?
You are allowed to occasionally spend time in your holiday let, for holidays and short breaks. You are not permitted to live in it.
Are holiday lets a good investment?
Holiday letting is certainly very popular at the moment, with many BTL landlords switching tactics. When run properly, holiday lets can be good investments, offering both income and capital returns.
Which makes the most money?
A short-term holiday let has the opportunity to make the most money. The equivalent weekly rent is much higher, but you will need to be located in an area that attracts guests all year round to benefit from this.
