Last updated: May 06, 2024

What you need to know about holiday let mortgages

Ben Tweedie CeFA
Mortgage and Protection Adviser at Mortgages for Doctors

What you need to know about holiday let mortgages

With the decline of the buy-to-let mortgage industry, holiday let mortgages have surged in popularity. They can be an attractive investment as you can often charge more than a buy-to-let property. You can also use it yourself for holidays.

However, financing a holiday let property can be more difficult.

You can’t use a buy-to-let or residential mortgage on a holiday property, and there are some important factors to consider before taking out a holiday let mortgage such as higher deposits and slightly higher interest rates.

What is a holiday let mortgage?

A holiday let mortgage is a type of mortgage designed specifically for properties that are rented out as short-term holiday accommodation. These mortgages are typically offered by specialist lenders who understand the unique risks and challenges associated with owning and renting out holiday let properties.

What are the requirements for a holiday let mortgage?

To be eligible for a holiday let mortgage, you will typically need to meet certain criteria, including:

  • Minimum income: Lenders usually require a minimum income of between £20,000 and £40,000.
  • A sizable deposit: You will typically need to put down a larger deposit than you would for a traditional mortgage, often between 25-40% of the property value.
  • Rental income: Lenders will want to see evidence that the property has a history of generating rental income, such as past rental income statements or a projection of future rental income.
  • Personal situation: Most lenders require that you already own your own home and are 21 years of age or older.
  • Main residence: Holiday-let mortgages can’t be for a main residence, or somewhere that mortgage applicants have previously used as their main residence.    
  • A management plan: Lenders will want to see that you have a plan for managing the property and ensuring that it is maintained to a high standard.

What are the benefits of a holiday let mortgage?

There are several benefits to financing a holiday let property with a specialist holiday let mortgage, including:

  1. Higher rental income potential: Holiday let properties often generate higher rental income than traditional long-term rentals, particularly during peak holiday seasons.
  2. Tax advantages: Holiday let properties are often eligible for certain tax deductions, such as mortgage interest, property management, and cleaning expenses.
  3. Personal use: Unlike traditional rental properties, holiday let properties can be used for personal vacations, providing owners with a unique vacation experience while still generating income.
  4. Capital appreciation: Property values in desirable holiday destinations can increase over time, providing owners with the potential for capital appreciation.

What are the risks of a holiday let mortgage?

While holiday let properties can be a lucrative investment opportunity, there are also some risks to consider, including:

  1. Seasonal demand: Holiday let properties are often dependent on seasonal demand, which can fluctuate throughout the year.
  2. Property management: Holiday let properties require a higher level of maintenance and management than traditional rental properties, which can be time-consuming and costly.
  3. Vacancy periods: There may be periods where the property is vacant, particularly during off-peak seasons, which can impact the owner's cash flow.
  4. Regulation changes: Regulations around holiday let properties can change, which can impact the owner's ability to generate rental income.

In conclusion, holiday let mortgages can be a great investment. If you can find enough short-term tenants to fill your property, you could create a handy second income. But it's important to carefully consider the risks and benefits before making a decision.

Working with a specialist holiday let mortgage lender can help ensure that you are getting the best financing options and advice for your unique situation.

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