Holiday Lets:
A Complete Guide

What type of mortgage do you need to buy a holiday let?

To finance a property for short-term letting, you'll need a holiday let mortgage, which differs from buy-to-let or second-home mortgages. The location is key—if the property is in the UK, you will need a UK holiday let mortgage. For properties abroad, you'll require an overseas mortgage, which comes with additional complexity, including different legal and financial requirements.

If you're considering using Airbnb, that’s a related but separate mortgage product.

How does it differ from a buy-to-let mortgage?

Buy-to-let mortgages are designed for properties rented to long-term tenants under an Assured Shorthold Tenancy (AST), usually lasting 6-12 months. In contrast, holiday let mortgages cater to properties let out for short-term periods, - a few days, a week or more typically 31 days or less at a time.

Because rental income from holiday lets fluctuates depending on the season, lenders calculate projected income based on low, mid, and high-season lettings. Additionally, they often assess your personal income to ensure you can meet the mortgage repayments during periods of low occupancy.

A key difference is that holiday let mortgages typically require a larger deposit compared to buy-to-let mortgages.

How to get a holiday let mortgage

1. Always Consult a Specialist Broker like us at Mortgage One
   Start by speaking with a broker who specialises in holiday let mortgages. Their expertise will help you navigate this niche lending area and secure the best deal. Contact us to get matched with a holiday let mortgage expert.

2. Prepare Your Documents
   Ensure your credit report is accurate and compile the necessary documents, such as proof of income and bank statements.

3. Create a Business Plan
   Outline your projected rental income, taking into account fluctuations during different seasons. Lenders will require a detailed plan to evaluate the investment’s viability.

4. Meet the Deposit Requirements
   Be prepared to put down at least 25% of the property's value as a deposit, though some lenders may require up to 40%.

5. Prove Additional Income
   Lenders often require proof of additional personal income to ensure you can cover mortgage payments during slow seasons.

6. Obtain Holiday Home Insurance
   Since holiday lets come with unique risks, insurance that covers cancellations and other income disruptions is required.

7. Furnish the Property
   A fully furnished property is essential for attracting bookings and maintaining the expected rental income.

What kind of interest rate to expect

The interest rates on holiday let mortgages can vary significantly. With financial uncertainty in the UK rates fluctuate. A good broker will watch these rates for you and capture the best rates during your window. Mortgage One is run by me - Matt Moffat - as an ex-city trader where I used to trade Bonds and Mortgage Backed Securities I am very used, and still watch rates all day.

The key here is: always consult a broker for the most up-to-date rates.

How a holiday let mortgage is calculated

Lenders evaluate holiday let mortgages based on both the projected rental income and your personal income. Typically, the projected rental income must cover at least 125%-145% of the mortgage repayment. The exact figure will depend on the lender and the property’s location, as well as expected seasonal variations. Your broker can calculate this for you.

Which lenders offer holiday let mortgages?

Holiday let mortgages remain a specialist product, offered mostly by building societies and smaller private lenders, many of which you can only access through a broker.

Some lenders, allow residential mortgage customers to let their homes via Airbnb for up to 90 days per year without increasing their interest rate, provided local regulations are followed.

Rules and eligibility criteria

Since holiday let mortgages are higher risk for lenders, they often come with stricter eligibility criteria, including:

• Deposit requirement: You’ll need at least a 25% deposit, though some lenders may require up to 40%.

• Homeowner status: You generally must be a homeowner to apply for a holiday let mortgage. First-time buyers typically cannot apply.

• Minimum income: Most lenders require that you have a personal income of at least £10,000 to £40,000 in addition to your projected rental income.

• Loan limits: Lenders often impose a maximum loan amount between £400,000 and £750,000, though some may extend up to £1.5 million.

• Rental income: The property must typically generate rental income equal to 125%-145% of the mortgage repayments.

• Property usage: The property cannot be your main residence, and many lenders require it to be available for rent at least 210 days per year, with 105 days of actual lettings.

• Property type: Non-standard properties like thatched cottages may be harder to finance. Additionally, lenders may be cautious with properties that are difficult to resell.

• Geographical restrictions: It can be more challenging to secure finance for properties outside mainland UK, though some lenders specialise in areas such as the Isle of Wight. Some lenders will not lend on the IOW or Channel Islands. Your broker will know.
  

Getting a holiday let mortgage in Scotland

Scotland presents a smaller market for holiday let mortgages, with fewer than 10 lenders currently accepting Scottish properties. Lending criteria are often stricter, especially in remote areas like the Highlands. However, some lenders are more flexible about location.