Last Updated on 16th September 2020
Buying a holiday home can be a dream for many. Furthermore, it can also provide an income when you’re not occupying the home yourself. A holiday let mortgage can allow you to do this, providing you with both an income and a place to stay.
Whether you want to invest in a holiday let or a place to visit every now and again, getting the right mortgage is crucial. This is because regular mortgages aren’t sufficient to purchase holiday homes. This is why lenders offer holiday let mortgages for this very purpose.
Our guide will explain everything you need to know about mortgages for holiday lets. In addition, our experts are available to answer any of your questions.
What is a holiday let mortgage?
A holiday let mortgage is a loan used to purchase a property that can be let out to tourists and visitors on a short-term basis. A mortgage for a holiday let is a specific loan designed purely for investment purposes.
If you don’t want to let your holiday home and want to stay there yourself, you’ll need a mortgage for a second home. This type of mortgage is completely different from a holiday let mortgage. For instance, one mortgage is for investment and the other is for your own residential purposes.
Although you must qualify for a holiday let mortgage, your property must also be suitable. For instance, your property must be available as holiday accommodation for at least 210 days a year. Furthermore, it must also be advertised as furnished accommodation.
Whether you want to let your holiday home all year round, you’d still have the option of enjoying visits there yourself. This is why a holiday home can provide opportunities for both business and pleasure.
Can I use a buy to let mortgage to buy a holiday let?
We’re often asked whether a buy to let mortgage can be used to buy a holiday let. The short answer is no. A buy to let property is typically let out long-term on six-month tenancies at least. On the other hand, a holiday let can be very short-term with visitors staying for a few weeks or even days at a time.
While both buy to let and holiday homes charge a fee to reside in the property, the way they’re operated are completely different. For instance, a landlord and the owner of a holiday let will have very different responsibilities. Some holiday lets have a ‘serviced’ element to them, very much similar to a hotel and are often let furnished.
The income generated from a buy to let is also likely to be very different from a holiday let. For instance, holiday lets are typically priced higher and are charged per day, as opposed to per month. This allows you as the owner of a holiday let to potentially make a lot more money than a buy to let.
On the other hand, your occupancy rate on a holiday let is likely to be a lot less than a buy to let. This can often even-out the differences in income. Nonetheless, lenders are very much aware of the differences between buy to lets and holiday lets and as a result, offer different mortgages for each. Furthermore, each mortgage is also assessed in a completely different way.
Mortgage lenders for holiday lets
The majority of high street lenders don’t offer mortgages for holiday lets. The good news is that there are lenders offering holiday let mortgages, although they tend to base their deals on a case by case basis.
Lenders will base your assessment on your income, affordability and deposit amount. They’ll also request details of your holiday let and the income you hope to achieve. This is because your holiday let will need to achieve around 125% – 145% of the mortgage interest.
Mortgage rates for holiday lets currently sit between 2-5%. Higher deposits can unlock lower rates, with smaller deposits doing the opposite.
As holiday accommodation is rarely let every day of the year, lenders will project an income valuation. This will give lenders an idea of the approximate income you can hope to achieve from your investment.
Having large existing outgoings such as your own residential mortgage can make mortgage approval difficult. Even if you earn a sizeable income, having large outgoings will impact your mortgage affordability.
How much deposit will I need?
Each lender that offers mortgages for holiday lets has their own unique method of assessing applicants. That being said, most lenders will require a minimum deposit of 30%. Some lenders may agree to a 25% deposit but it’s rare. Furthermore, other lenders will require a 35% – 40% deposit as a minimum.
The reason deposits for holiday lets are higher than regular mortgages is because of the risks involved. Letting out a holiday home is a business and there are no guarantees it will be a success. The risk is even higher if you’re solely relying on the income from your holiday let to repay your mortgage.
Claiming tax relief on a holiday let mortgage
An investment into a holiday let often provides tax benefits, which may be more difficult through general buy to let investment. Furnished holiday accommodation is classed as a business and therefore it’s likely you’ll be able to claim tax relief on your mortgage interest.
As you’re running a holiday accommodation business, you’ll be able to deduct your expenses from your income. This can greatly reduce your tax liability. As a result, the extra income saved can work wonders towards your investment.
Do I need a mortgage advisor to buy a holiday let?
Although you won’t specifically need an advisor to get a holiday let mortgage, it drastically improves your chances of approval.
Some lenders only offer intermediary mortgages, which means they’ll only offer certain deals with the aid of an advisor. Furthermore, applying for a holiday let mortgage is nothing like applying for a regular mortgage.
Your application needs to be viable otherwise there is a chance you’ll be declined. This is because your application is more of a business proposal, so the figures need to make sense for any lender to consider you.
Our advisors specialise in mortgages for holiday lets and understand the application process from start to finish. With access to every UK lender, you can be sure you’re getting the best deal possible. Buying a holiday let is a business as well as an investment, so getting the numbers right really matters.