Holiday Let Mortgages
Letting out a property as a holiday let can be financially rewarding in a number of different ways. It should generate a higher income than an equivalent buy to let but it does require some extra effort to do this.
Whether you are letting the property yourself, using airbnb, or maybe a local agent, it’s likely that you will need a holiday let mortgage to finance it. Let us show you how they work and how to apply for one.
Important Notice Regarding Changes to Furnished Holiday Let (FHL) Mortgages
The UK Spring Budget 2024 has announced upcoming changes to the Furnished Holiday Let (FHL) tax status. This means that key tax benefits previously available to holiday let properties will be phased out.
This will take effect from 6 April 2025 “and draft legislation will be published in due course,” says the government.
Key Changes:
- Holiday let properties will no longer qualify for capital gains tax reliefs for traders.
- Owners will not be entitled to plant and machinery capital allowances on items in their properties.
- Holiday let profits will no longer count towards pension earnings.
- Most importantly, landlords will lose the ability to deduct mortgage interest payments in full from their rental profits for tax purposes.
These changes could significantly impact the financial viability of owning a holiday let property. We strongly advise you to consult with a mortgage adviser and a tax specialist to understand how these changes may affect your investment.
Our site will be updated in due course to reflect these changes.
Holiday lets are a specific type of investment property that have their own rules regarding mortgages and letting style.
Unlike a buy to let, it will only be rented out for short periods at a time and to different guests.
In terms of financing a UK holiday let there are now quite a few lenders in this market. However, many of these are not well known or only deal with mortgage brokers.
Our owner, Sean Horton, has been involved in holiday let mortgages since 2006 and so we have a lot of experience in this area which we can share with you.
What is a holiday let?
A holiday let is a fully furnished property that is let out for short periods to paying guests. The simplest comparison is Airbnb. No-one permanently lives at these properties, they just book for weekend breaks and staycations.
The type of mortgage you may need for a holiday cottage depends on the letting style:
I want to rent it out as much as I can
In our opinion this is a true holiday let.
You have purchased the property with a view to maximising the lettings and the rental income. It has the furnishings and amenities that are attractive to potential guests.
If you wish you can stay at the property yourself, maybe with friends, but it’s primary purpose is as a profitable investment property.
You will need a:
It’s our holiday home but I will rent it out for some of the year
Having a holiday home can be a rewarding financial investment that you also get to enjoy with family and friends.
Often the driver here is to use and enjoy the asset as a second property, rather than a business. But many owners do rent out their holiday homes for a part of the year to contribute towards the running costs.
You will need a:
What is a holiday let mortgage?
A holiday let mortgage is designed for people who wish to purchase or remortgage a fully-furnished property that will be mainly let out to guests for short stays.
There’s no limit to how many days you can let it out for across the year.
For the mortgage repayment method you have the normal choices of interest only or repayment. These are covered in more detail in our Guide to Mortgage Types.
When applying for your holiday rental mortgage you will need to choose an interest rate deal. These obviously differ between lenders but generally you can find: fixed rates, tracker rates and variable rates. The rates available are competitive but slightly higher than for a buy to let mortgage.
Can you remortgage a holiday let?
Yes, as with other types of mortgage it is possible to remortgage a holiday let over to a new lender. Learn more about holiday let remortgages.
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.
Lending criteria
Most mortgage applications will be assessed manually when received by the lender.
Holiday cottage mortgages were originally offered on a commercial mortgage basis which needs an element of expertise, market knowledge and common sense.
Fortunately the brokers we work with have forged strong connections with lenders, allowing them to be able to discuss client cases directly with underwriters, even before any forms have been completed.
Loan to value (LTV): Typically 75% maximum
Minimum income: £25000pa of provable earned income
Borrowers: Single, joint, partnerships, trusts, limited companies, SPV companies
Expats: Yes, we have solutions for expats
Rent Assessment
As with a buy to let, the size of the mortgage available is determined by the rental income, actual or projected.
An experienced letting agent will need to confirm what is achievable for the low, medium and high seasons. Lenders then use an average of these. In addition, there is the normal stress test of 125-145%.
There are some ‘holiday let’ lenders that only work on the AST income. This provides a far lower figure.
Income Top-Slicing
Top-slicing is an option where the lender uses the borrower’s personal income to ‘top up’ any shortfall in rent which is needed for the borrower to obtain the desired mortgage amount.
We have many clients where this has been used successfully, it is another benefit of personal underwriting and working closely with lenders.
Top-slicing works best where the borrower has high income and low outgoings.
The Property
Upon completion the property should be in excellent habitable condition, have electricity/gas supply, a functional kitchen and bathroom.
In short, it should be somewhere that people would pay to stay.
When researching properties it is common to find some that have an occupancy restriction. This effectively means that it cannot be lived in permanently as your main residence.
This is, of course, absolutely fine for holiday letting.
However, you need to dig a big deeper to find out the exact nature of the restrictions, before you put an offer to buy in. Most styles of property are acceptable including multiple units, mixed use holiday lets, barn conversions, stone cottages.
Another popular option is to run the property as serviced accommodation.
Whilst financing such properties is not straightforward, a good mortgage broker who knows the right questions to ask and where to go, can obtain a mortgage for you on a restricted use property.
Can I let my property on airbnb?
Yes some lenders will accept Airbnb.
Please contact us with any specific requirements prior to making an offer.
Can I live in my holiday let?
One of the advantages of a furnished holiday let is that you can use it for your own holidays.
However, you cannot live in it permanently.
Is a main house with outbuildings acceptable?
Yes this is fine.
We can assist with mixed use properties (where you live on site) and also multi-units.
Not on the High Street!
The high street lenders can’t help every mortgage customer and they prefer the simple, low-risk ones.
If your situation is a bit different or needs a more personalised solution then our brokers can help.
Expert advice, for all situations.
Bridging Loans
The most flexible of secured loans and often misunderstood. Bridge loans can be used in so many different ways and can be arranged super fast.
Large Loans
High net worth mortgage brokers understand complex large loans and unique situations and can source bespoke deals from the right lenders.
Let to Buy
Let to buy combines a buy to let remortgage with a residential mortgage. Allowing you to move house while keeping your current home.
What kind of mortgage do you need for Airbnb?
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How is a holiday let different to a buy to let?
Many people are surprised to learn that, from a lending perspective, these two are very different.
On the face of it they are both residential properties that are owned by a landlord and let out. For every type of mortgage the lender needs to know in advance, and agree to, how the property will be used. This is then incorporated into the mortgage conditions.
There are quite a few important differences:
Letting style
Buy to let: To be let to tenants who are to occupy the property as their main residence. A signed tenancy agreement is needed.
Holiday let: To be let out for short periods only to guests and holidaymakers. No-one may live there permanently.
Rental income
Buy to let: Usually a fixed amount is paid each week or each month. This only changes when there is a new tenant or a change is agreed to the ast.
Holiday let: Rents charged will differ over the year according to demand and the high/low letting seasons.
Property & location
Buy to let: A residential property that is suitable for a main dwelling. Can be furnished or unfurnished. Often in city centres or built-up areas near transport links.
Holiday let: All properties to be fully furnished and suitably appointed for use as a short term holiday rental. These tend to be located out of city centres.
Holiday let mortgages for limited companies
This is a common topic of conversation for anyone contemplating buying a holiday let.
Should I buy a holiday let in my own name or use a limited company?
The driving force behind the popularity of using a limited company is the increasing taxation of investment properties and the inability to fully offset mortgage interest on buy to lets. Where these are owned in a limited company you can offset all of the interest costs, dramatically improving your yield.
Furnished Holiday Lets were able to fully offset mortgage interest, but this advantage will no longer be possible from April 2025. So to regain the ability to offset all mortgage interest, the asset needs to be held within an SPV structure.
Are holiday let mortgages available for companies? – Yes, lenders are willing to lend to limited companies for a holiday let property. The company itself must be set up as an SPV, or Special Purpose Vehicle. Our SPV Guide covers this topic in detail.
Is it a good idea? – Sometimes… First, it is important that you seek advice from an accountant before making any decisions.
There may also be other reasons or advantages of investing via an SPV Company that means it is more suitable for you.
Read more on Limited Company Holiday Let Mortgages
Can you arrange mortgages for expats?
Yes, the brokers we work with have extensive experience helping expats with both holiday lets and buy to lets.
Can you finance multi-unit properties?
Yes we can. These generate excellent returns as a holiday let.
Finance would normally be based around a commercial mortgage solution.
What is a 106 restriction?
A section 106 restriction changes how the property can be used.
It is very common to come across these within holiday letting.
Who offers the best holiday let mortgages?
Finance for holiday lets was originally provided by a few building societies that also offered commercial lending.
Today, there is a lot more choice but lenders tend to either be one of the smaller/regional building societies or one of the Challenger Banks. The ‘high street’ lenders have yet to fully join the party!
Who are the best lenders?
The lenders are quite varied and most do not advertise their holiday let mortgage criteria, preferring to obtain their business via specialist brokers.
You may come across some of the larger lenders such as: Nationwide, Santander, Metro Bank, Barclays and HSBC. Unfortunately, they do not offer a ‘true holiday let mortgage’, rather they are either buy to let mortgages or holiday home mortgages that allow a small degree of letting.
BATH BUILDING SOCIETY
Tend to charge higher rates. However they can be useful with some complicated scenarios.
CUMBERLAND BS
A specialist lender, dealing in the hospitality market. Simple lending to the very complex and happy to lend in Scotland. Have to be approached in the right way, as the perceived quality of the applicant is critical.
FURNESS BS
Will lend in Scotland. 75% LTV often available on paper, however affordability can be an issue, as the property income cover ratio is not considered in isolation.
HODGE BANK
An established UK lender who is a fairly new entrant to the holiday letting market. Hodge will accept first time buyers, but the property underwriting can be very convoluted.
LEEDS BS
Since August 2022 the Leeds BS no longer offers second home mortgages.
THE MELTON BS
A very helpful building society who has quite strict holiday let lending criteria. If you need speed they are probably not the best choice.
METRO BANK
This challenger bank often shows up when searching for holiday let loans. However, they do not have a true product. It is essentially a residential mortgage that will allow you to purchase a holiday home or second home. This property can be let out (including Airbnb) but only for a maximum of 90 days per year.
MONMOUTHSHIRE BS
If you know your way around their underwriting, a great lender. 75% LTV often available and their use of rental often makes the loan size possible. However, they have structured personal underwriting criteria and are strict on acceptable property types.
PRINCIPALITY BS
One of the earliest into the holiday let lending market. Usually offer some good rates, and will accept certain types of non-traditional construction. Strict lending criteria and again loan can be curtailed by their more limited use of rental income.
SUFFOLK BS (IPSWICH BS)
Well known for offering a market leading 80% loan to value (LTV) holiday let mortgage. However most FHL cases do not pass the rental cover ratio. Very strict on acceptable property types and only lend within a locally defined area.
TEACHERS BS
Teachers are small and are often out of the market for long periods of the year. When they are in the market they can be useful with complex cases that don’t fit the standard lenders criteria.
Will I need a broker?
YES.
DEFINITELY.
In our opinion it is vital that you use a mortgage broker to help you to search for the right mortgage and to also ensure your investment stacks up.
Your broker needs to be:
Independent
Whole of market
Experienced in holiday lets
There many nuances to how lender’s assess a holiday let property, what they look for in a borrower and how to get a good deal. This is especially true if you choose to purchase via an SPV limited company.
Our specialist brokers know and understand the lenders that operate in this marketplace. They can personally discuss clients cases, directly with the lending team, to ensure your application will be acceptable and that everything ‘looks right’. Your broker can provide advice to help shape and package your borrowing needs before presenting it to the best lender.
There are some wonderful opportunities for holiday letting which can include; extensions, barn conversions, annexes, out buildings, multi-units, to name but a few.
Having the ear of an experienced broker can help you work out what is affordable and what is achievable.
