The Complete Guide to Holiday Let Mortgages
Property investors are increasingly looking towards UK holiday lets as a way of diversifying their portfolio and raising the property yield.
To finance one you will need a holiday let mortgage, a special type of mortgage that permits short-term letting.
When done well holiday letting can be an excellent investment decision, with the unusual benefit of being able to stay there yourself!
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 is being updated in due course to reflect these changes.
The holiday let business is booming in the UK and the demand for staycations continues to be strong.
As well as the increased interest from guests, many property owners are also upping their game by offering luxurious holiday cottages, built with the highest quality fixtures and fittings for an ultra-comfortable and memorable stay.
Getting the right finance will depend on how the property will be used, with holiday let mortgages being the best option for owners who wish to let out the property as much as they can.
Our comprehensive guide will explain what a holiday let is and how to get the right mortgage.
Table of Contents
- What is a Holiday Let?
- What is a Holiday Home?
- What is a qualifying Furnished Holiday Let?
- What is a Holiday Let Mortgage?
- How does a holiday let mortgage work?
- What is the mortgage criteria?
- Rental Income Assessment
- Limited Company Holiday Let Mortgages
- What are Occupancy Restrictions?
- Where can I get a holiday let mortgage?
What is a Holiday Let?
A holiday let is a fully furnished residential property that is commercially let out, for short periods, to paying guests. Think Airbnb, weekend breaks and staycation holidays.
It is not designed for anyone to live there as their main residence.
As the owner you may choose to stay in the property yourself, perhaps with family and friends. This is one of the perks, so enjoy it!
What is a Holiday Home?
A holiday home is a second residential property that you, your friends and family use from time to time.
Crucially, it is rarely let out to paying guests.
For this type of property you would need a second home mortgage or holiday home mortgage. There’s no letting aspect when applying for these so the loans have to be affordable on your income.
What is a qualifying Furnished Holiday Let?
A ‘qualifying’ Furnished Holiday Let (FHL) was able to take advantage of HMRC special tax status for FHL.
The UK government has announced its intention to abolish the FHL rules with effect from April 2025.
This means that key tax benefits previously available to certain holiday let properties will be phased out.
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.
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.
What is a holiday let mortgage?
A holiday cottage mortgage will allow you to buy or refinance a UK property which will be fully furnished and primarily let out to paying guests.
It is a specific type of mortgage where the lender is expecting the property to be let to lots of different people across the year and also to be occasionally vacant.
While it is possible to get this type of mortgage by approaching a lender directly, there are many more options available when you work with an independent mortgage broker.
The amount you can borrow is calculated from the holiday letting income (which is higher than buy to let) and you have the normal choices for repayment method and interest rates.
What about using a buy to let mortgage instead?
We are often asked about whether a buy to let mortgage can be used for a holiday let. Buy to let mortgages are much easier to find after all.
Sadly the answer is no. It is not possible to use a btl mortgage.
There’s a few reasons why this is not possible:
RENTAL INCOME – A holiday let will generate a lot more income than a buy to let. But if you use a btl mortgage then the lender will calculate the loan size according to rental as a buy to let. This often means that the loan offered is not large enough.
TYPE OF TENANCY – What we mean here is the way that the property is rented out. For a holiday let it will only be let for short periods: a few days up to a few weeks for guests who are on holiday. A buy to let needs to let permanently to one tenant who uses it as their home.
PERSONAL USE – A holiday rental mortgage lender will be very happy for you to occasionally stay in the property, it’s an expected perk. However, the same perk does not apply to buy to lets.
INSURANCE – You need to ensure that your property and contents insurance allows for short term letting, this could be problematic with a BTL mortgage.
What’s the difference between a holiday let and a buy to let mortgage?
How will the lender know what I am doing with the property?
Within the terms and conditions of your mortgage agreement it will explain how the property should, and should not, be used. Lenders are well within their rights to cross reference buy to let mortgages against properties listed on Airbnb or booking.com.
Also, you will occasionally find that neighbours complain about holiday let guests and the noise, which can lead to an investigation…
Where the lender sees a clear breach of their rules they are able to insist that the mortgage is immediately repaid, in full. (Yes, this does happen. We know of one client caught this way.)
Fitting the right mortgage to the right type of tenancy means that this should never happen. If you would like to discuss this with a broker please click on the button below.
How does a holiday let mortgage work?
In many aspects a holiday let mortgage is no different to a standard mortgage or a buy to let.
You are still able to choose:
THE REPAYMENT METHOD – Interest only or repayment.
TYPE OF INTEREST RATE – Fixed rate, tracker, variable.
They are available to purchase a property or to remortgage.
The lender will want to see proof of your income and the source of your deposit. It’s quite normal for the deposit to come from another owned property.
The rent needs to be confirmed by a local letting agent and assessed against the low, mid and high seasons for the area. The lender will use the average.
Most of these holiday let mortgages are underwritten by the lenders manually.
Yes, a real person will look at your application! This is a good thing as it enables a common sense approach. It also allows your mortgage broker to further explain to the underwriter your situation and why they absolutely must give you the money right away (well kind of).
What is the mortgage criteria?
Here’s a quick run down of the main criteria. Please check the current position with your mortgage broker.
Maximum LTV
Most mortgage lenders have a maximum loan to value of 75%, with some offering 80% for local properties.
Deposit
The vast majority of mortgage choices will require a deposit of at least 25%, sometimes more.
Income
You need to be able to prove a minimum earned income of £20-25,000 per year.
Borrowers
Pretty much anyone over 21 who can prove their earnings and has good credit. Limited company SPV also welcome.
First time buyers
There is quite a lot of choice for first time buyers wanting to purchase holiday lets.
Property
Must be freehold or long leasehold and in good condition, suitable as a holiday let and ready for letting.
75% LTV
Scotland
First Time Buyer
Mixed Use
Ltd Co SPV
Rental Income Assessment
The rental income from a holiday property can be very lucrative but it will be affected by seasonal variations according to where the property is situated. This is a very important aspect that you will want to discuss with some local agents prior to making any offers to buy.
As with buy to let mortgages it is the gross rental income calculation that determines the maximum possible loan.
If this falls short of what you need some flexible lenders will look to use any excess personal earned income to help increase the loan size. This is known as top-slicing.
Lenders will want a local letting agent to confirm either the expected rental income or the actual income per week. These need to be shown for the low, medium and high season, the lender will then take an average over 30-35 weeks.
STRESS TEST
The rental coverage stress test will be at 125%-145% of the mortgage interest payments, depending on the lender.
Limited Company Holiday Let Mortgages
It is possible to purchase your holiday let through a limited company.
The company must be set up as an SPV (Special Purpose Vehicle) which is acceptable to the lender. You can learn more about SPV’s here.
There are a number of lenders who accept applications from SPV Companies so there is plenty of choice. The maximum loan to value is 75% and the loan will be calculated as normal, according to the holiday let rental income.
Interest rate products will vary from lender to lender but variable, tracker and fixed rates are available. You will have the usual choice of repayment method: interest only or repayment.
When applying for this type of mortgage the Limited Company/SPV will be the mortgage applicant and the property owner.
Read more on Limited Company Holiday Let Mortgages
What about airbnb?
From it’s launch in 2008 Airbnb (Air Bed and Breakfast) has grown into a worldwide holiday accommodation business.
Airbnb does not own any properties themselves and the hosts are free to decide their own level of rental fees which are charged to guests via the Airbnb platform.
Can you get a mortgage for an Airbnb property?
Yes, mortgages that allow for Airbnb letting are available. UK lenders are gradually adapting to this new way of renting out properties for short-term lets. Options also exist where you want to run the property as serviced accommodation.
You will find more useful information in our article: “What kind of mortgage do you need for Airbnb?“
Can any property be used for Airbnb?
No. You should investigate any Restrictive Covenants relating to your property, this is especially important for leasehold properties such as flats. Commonly covenants will mention noise and nuisance and running a business.
A 90 days rule applies to Airbnb’s in London. It means that your property can only be rented for 90 days in any one calendar year. To go above this you would need to seek formal permission from the local council.
Portfolio Mortgages
A portfolio mortgage could be worth considering if you own four or more investment properties. By placing all of your properties under one mortgage facility you will streamline your finances and admin time. Read on to discover how portfolio mortgages work and how they can benefit landlords.
What are Occupancy Restrictions?
When assessing a specific holiday let property it is a good idea to learn about any restrictions early on in the discussions.
Restrictions can be on a per-property basis but also can apply to an area or certain type of property. The estate agent should be aware of these.
Holiday let occupancy clauses, or 106 restrictions, are placed on a property by the Local Authority Planning Department at the time that planning is sought or approved.
Some clauses allow 12 months holiday let use only, with a maximum stay of 30 days by one “occupant”. They can also state that the property can be let for 11 months but must remain empty for at least one month each year.
Most of these restrictions will mean that you can let your holiday property for all or most of the year but you will be unable to claim it as your main residence. Something to consider if it formed part of your retirement planning.
How much is the Stamp Duty?
If you currently own a property and you are buying another in the UK you will be liable for additional stamp duty, on top of the normal charges.
Higher rates for additional properties – You will usually have to pay 3% on top of SDLT rates if buying a new residential property means you will own more than one.
This would apply to:
- A holiday let
- A buy to let
- A second home
- A holiday home
Our online Stamp Duty calculator will provide a guide to the amount you may have to pay. HMRC have a lot of information regarding Stamp Duty: www.gov.uk/stamp-duty-land-tax.
Where can I get a holiday let mortgage?
There’s currently just over 20 lenders that can lend against holiday lets. Some of these are quite well known; Hodge, Principality BS or Cumberland BS. But there are many more mortgage deals available which can’t be accessed directly. There are a reduced number of lenders offering holiday let mortgages in Scotland.
To find the best holiday let mortgage, it is a good idea to find a specialist broker who has arranged holiday let finance before. They will know who to approach and how to approach them.
Some holiday lets may need a specialist property mortgage, due to its unusual style or construction. Examples of these would be mortgages for thatched roof houses or barn conversion mortgages.
Remember, mortgages for holiday cottages are normally assessed (underwritten) manually by the lender. It is therefore important for your application to be clear, financially strong and, of course, fit the lender’s eligibility criteria.
Brokers are also able to approach the lender prior to making an application to informally discuss your case with them. This may reveal requirements that have yet to be considered that the adviser can help with. It’s also an opportunity for your broker to promote why they believe your case should be approved.
You will need holiday park finance if you intend to buy some land and install lodges, pods or static caravans.
I’m in, get me a broker pronto!
Do I need to use a mortgage broker?
While we are tempted to say Yes, the honest answer is No.
You do not have to use a mortgage broker. If you don’t, you can only approach the lenders that will accept direct mortgage applications.
However, if you want loads more choice, lots of great advice and an experienced professional helping you, then a broker is exactly what you do need!
LET US HELP YOU
We work with one of the largest and most experienced independent mortgage brokers in the UK.
With over 45 years of experience in the mortgage industry they understand the challenges that clients can face when looking for a holiday let mortgage. Operating as a whole of market broker they have access to every mortgage deal and enjoy successful relationships with all of the key lenders.
They have the knowledge and expertise to help guide you through the complex process of raising finance to invest in the property market. They are also fully FCA regulated.
Click on the button below so we can put you in touch with an expert broker.
FAQ
Frequently Asked Questions
Does the holiday let need to be furnished?
Yes, it needs to be fully furnished and suitable for letting. What does fully furnished mean?
Can I stay there for holidays?
Yes you can. Your friends and family can use the property for short breaks.
What is an Occupancy Restriction?
This normally means that the property cannot be occupied for 365 days in a year or used as a main residence.
Can I claim back the mortgage interest?
From April 2025 this will only be possible if the property (and the mortgage) is in the name of an SPV limited company.
Can I buy a house with an outbuilding?
Yes, mixed-use and multi-unit holiday lets can all be financed.
