Holiday Let Mortgages

If you’re considering investing in the lucrative market of holiday rentals, one term you will undoubtedly encounter is “holiday let mortgages”.

These specialised mortgage products are designed specifically for properties that are rented out on a short-term basis to tourists and holidaymakers. In this guide, we’ll explore everything you need to know about holiday let mortgages, helping you make informed decisions on your path towards becoming a successful holiday let owner. From understanding the criteria and application process to grasping the unique financial implications, we’ve got you covered. Read on to demystify the concept of holiday let mortgages and learn how they can be an integral part of your investment strategy.

What is a holiday let mortgage?

A holiday let mortgage is a type of mortgage specifically designed for properties that are rented out on a short-term basis to tourists or holidaymakers.
These mortgages take into account the potential for variable rental income across different times of the year, as holiday properties may not be occupied consistently. This differentiates them from standard buy-to-let mortgages, which generally assume a consistent rental income from long-term tenants.

In the UK, lenders typically calculate the affordability of a holiday let mortgage based on projected rental income from the property. They’ll also consider the borrower’s personal income and other financial circumstances.

Eligibility criteria, interest rates, and terms for holiday let mortgages can vary widely between lenders. It’s also worth noting that not all lenders offer holiday let mortgages, given the unique risks associated with this type of lending.

The borrower of a holiday let mortgage may use the property for their own holidays, but there will typically be restrictions on the total amount of time they can spend there each year. The property will also need to be available for commercial holiday letting for a certain number of days per year.

As with any mortgage, it’s crucial to carefully consider the financial commitment before taking on a holiday let mortgage and to seek advice from a financial advisor or mortgage broker if necessary.

How does a holiday let mortgage work?

A holiday let mortgage operates in a similar way to a standard mortgage, but it’s designed specifically for properties that will be let out on a short-term basis to holidaymakers. Here’s a step-by-step rundown of how it typically works:

1. Application and Assessment: You apply for a holiday let mortgage with a lender, just like you would for a traditional mortgage. The lender will then assess your application based on a number of factors, including your personal income, the expected rental income from the property, and your credit history.
2. Affordability Calculation: The affordability of a holiday let mortgage is primarily calculated based on the potential rental income from the property. This is different from a traditional residential mortgage, where your personal income is the primary consideration. The projected rental income is typically based on a reasonable expectation of peak letting periods.
3. Mortgage Offer: If the lender is satisfied with your application and the projected income from the property, they’ll offer you a mortgage. The interest rate and terms can vary widely, depending on the lender and your individual circumstances.
4. Property Purchase: You use the mortgage to purchase the property and then pay back the lender over a set period of time (the mortgage term), along with interest.
5. Letting the Property: You let the property out to holidaymakers for short periods. The income you generate from these lettings goes towards repaying the mortgage.
6. Occupancy Restrictions: There are usually restrictions in place on how many days per year the owner can use the property, and how many days it must be available for holiday letting. These restrictions vary by lender.
7. Variability in Income: The income from holiday lets can be variable and seasonal, so it’s crucial to manage finances effectively to ensure that you can meet your mortgage repayments even in off-peak times. This is one of the key differences between a holiday let mortgage and a standard buy-to-let mortgage, which generally assumes a more consistent rental income.
8. Mortgage Repayment: Just like with a traditional mortgage, you’ll gradually repay the loan and interest to the lender over time. Once the mortgage is fully repaid, you own the property outright.

Are holiday lets a good investment?

Investing in holiday lets can be profitable, but it comes with its own unique set of challenges and considerations. Here are some key points to consider when deciding if a holiday let is a good investment for you:

Location: The success of a holiday let often depends on its location. Properties in popular tourist areas or near attractions tend to have higher demand.

Seasonality: Income from holiday lets can be highly seasonal. For example, a beach house may be in high demand during the summer months but could stay vacant during the winter. You need to factor in these fluctuations when calculating potential income.

Maintenance and Upkeep: Holiday lets often require more maintenance than long-term rental properties due to frequent changeovers of occupants. You’ll also need to factor in the cost of cleaning, laundry, and possibly a property management service.

Legal and Insurance Considerations: There may be specific local regulations and tax implications associated with letting a property as a holiday home. Insurance for holiday lets may also be more expensive than for standard rental properties.

Market Competition: The holiday let market can be competitive, especially in popular areas. You’ll need to ensure your property stands out from others in the area, which could involve investing in high-quality furnishings, professional photography for your listings, or additional amenities for guests.

Mortgage Considerations: Holiday let mortgages can be more complex and expensive than standard mortgages, with potentially higher interest rates and stricter lending criteria. However, they do offer certain benefits, such as the ability to use the property yourself for a certain period each year.

Financial Return: Despite the challenges, a well-managed holiday let in a good location can generate a healthy income, often higher than that of a traditional rental property. Additionally, if the property appreciates over time, you could make a profit when you sell.

Personal Usage: One of the perks of owning a holiday let is the ability to use it for your own holidays, although this is typically limited to a certain number of days per year by mortgage lenders.

Holiday-let mortgage criteria

When applying for a holiday let mortgage, lenders will have specific criteria you must meet. These criteria can vary between lenders but typically include the following:

1. Personal Income: Some lenders may require you to have a certain level of personal income outside of the projected rental income. This is to ensure that you can cover the mortgage payments during off-peak periods when the property might not be let.
2. Projected Rental Income: Lenders will look at the potential rental income from the property. This will usually need to cover a certain percentage of the mortgage repayments – often around 125-145%, although this can vary.
3. Deposit: Holiday let mortgages typically require a higher deposit than standard residential mortgages. It’s not uncommon for lenders to require a deposit of around 25-40% of the property value.
4. Credit History: As with any mortgage, a good credit history is important. Lenders will look at your credit report to assess your past borrowing and repayment habits.
5. Property Availability: The property must be available for commercial holiday letting for a certain number of days per year, which varies by lender but is often around 210 days.
6. Personal Use: Most lenders will also specify that you can only use the property for personal use for a certain number of days per year, often around 60 days.
7. Location and Property Type: The location and type of property can impact your eligibility. Some lenders may have restrictions on the types of properties or locations they will lend on.
8. Age: You must meet the lender’s minimum age requirement, usually at least 18 or 21 years old, and some lenders may have an upper age limit too.
9. UK Residency: Many lenders require borrowers to be UK residents, although there are some that cater to non-residents.

Mortgage lenders for holiday lets

There are a number of UK mortgage lenders that offer holiday let mortgages. However, it’s always best to consult with a mortgage broker or advisor who can provide up-to-date advice tailored to your personal circumstances. Here are a few lenders that were known to offer holiday let mortgages:

1. Leeds Building Society: One of the more well-known lenders in this market, Leeds Building Society offers holiday let mortgages for properties in England, Wales, and Scotland.
2. Cumberland Building Society: Cumberland is another lender that offers mortgages for holiday lets, including for properties located in tourist-heavy areas like the Lake District.
3. Furness Building Society: Furness offers holiday let mortgages both for properties within their local geographical area and throughout England and Wales.
4. Mansfield Building Society: This lender offers mortgages for holiday lets on a case-by-case basis.
5. Market Harborough Building Society: Market Harborough offers holiday let mortgages and is known for its flexible, case-by-case approach.
6. Building Societies such as Bath, Ipswich, and Monmouthshire: These are smaller lenders that offer holiday let mortgages, though they might have more geographic restrictions.
7. Specialist Lenders like Paragon and Shawbrook: These are more specialised lenders that offer a wide range of niche products, including holiday let mortgages.

Holiday let mortgage rates

The interest rate you’ll be offered on holiday let mortgage can vary depending on several factors, including the lender, your credit score, the size of your deposit, and the loan-to-value (LTV) ratio of the mortgage.

In general, interest rates on holiday let mortgages tend to be higher than those on standard residential mortgages due to the higher perceived risk. This is because holiday lets often have variable income throughout the year and maybe unoccupied for periods of time.

As a rough guide, in recent years, holiday let mortgage rates have typically ranged from around 2% to 5%, but the rate can be higher or lower depending on the factors above and the overall economic and lending environment. It’s important to remember that the headline interest rate is not the only factor to consider when comparing mortgages. Other factors, such as fees, the term of the mortgage, and whether the rate is fixed or variable, can also have a big impact on the overall cost of the mortgage.

For the most current and relevant rates, it’s best to consult with a mortgage broker or advisor who specialises in the holiday let mortgages. They can provide you with information tailored to your personal circumstances and help you find the best mortgage product for your needs.

How can I calculate potential rental income for my UK holiday let to ensure I can cover the mortgage repayments?

Calculating the potential rental income for your holiday let is crucial in ensuring you can cover your mortgage repayments. Here’s a step-by-step guide on how you can do this:

1. Research Rental Rates: Look at similar properties in the same area on holiday let websites. Consider factors such as size, location, amenities, and the time of year. It’s important to research prices for different times of the year as rates can vary significantly between peak and off-peak seasons.
2. Calculate Weekly Rates: Once you’ve established a reasonable weekly rate for peak and off-peak seasons, calculate your potential weekly income for each.
3. Estimate Occupancy Rates: This is the percentage of time that your property is expected to be rented out. This can be difficult to estimate, but you might assume a higher occupancy rate in the peak season (for example, 70-80%) and a lower one in the off-peak season (for example, 30-40%). You can adjust these numbers based on your research and local market conditions.
4. Calculate Annual Income: Multiply your weekly rates by the number of weeks in each season, then multiply by the estimated occupancy rates. Add these figures together to get your estimated annual rental income.
5. Subtract Expenses: From your annual rental income, subtract all anticipated expenses. This can include things like maintenance costs, cleaning fees, utility bills, insurance, agency fees, and any other costs associated with managing the property.
6. Compare to Mortgage Payments: Finally, compare your estimated net income to your expected annual mortgage repayments. Remember, your rental income should be higher to provide a buffer for any unexpected costs or changes in the market.

How much does a holiday-let mortgage cost? 

The costs of obtaining a holiday let mortgage involve several factors. Here are the typical costs you might expect:

1. Deposit: This is an upfront payment you make towards the purchase of the property. For holiday let mortgages, the deposit is usually larger than for standard residential mortgages, often around 25-40% of the property’s value.
2. Mortgage Fees: These are fees charged by the lender for arranging the mortgage. They can include an arrangement fee (also known as a booking or product fee), valuation fee, legal fees, and potentially a broker fee if you’re using a mortgage broker. Some of these fees can be added to your mortgage, but remember you’ll then pay interest on them.
3. Interest Rate: The interest rate on your mortgage is a key cost. Holiday let mortgage rates are often higher than standard residential mortgage rates, reflecting the higher perceived risk associated with variable rental income.
4. Stamp Duty Land Tax: This is a tax on the purchase of properties in England and Northern Ireland, with similar taxes in Scotland and Wales (Land and Buildings Transaction Tax and Land Transaction Tax, respectively). The rate depends on the property price and whether it’s your second property or not. Since a holiday let is often a second property, higher rates usually apply.
5. Survey Costs: Before buying a property, it’s advisable to get it surveyed to check for potential structural issues. The cost of a survey can vary depending on the type of survey you choose.
6. Insurance: Buildings insurance is usually a requirement of mortgage lenders, and you may also need specific holiday let insurance.
7. Running Costs: Once you’ve purchased your holiday let, ongoing costs can include maintenance, repairs, utility bills, cleaning, advertising for tenants, and property management fees.
8. Tax Implications: Income from your holiday let will be subject to income tax. However, furnished holiday lets can also qualify for certain tax advantages, such as Mortgage Interest Relief and Capital Gains Tax relief, providing they meet certain criteria.
9. Potential Early Repayment Charges: If you want to pay off your mortgage early, you might face an early repayment charge, especially if you’re within an initial fixed or discounted rate period.

How long is the typical application process for a holiday let mortgage?

The length of the application process for a holiday let mortgage can vary significantly depending on a range of factors, including the lender, the complexity of the borrower’s financial situation, the property itself, and whether there are any unforeseen issues that arise during the process.
Generally speaking, a straightforward mortgage application could be approved in principle within a few days. However, the complete mortgage process from application to completion (when the funds are transferred and you become the legal owner of the property) typically takes between 4-8 weeks.

Here’s a rough timeline of the process:

1. Mortgage Application Submission: After gathering all necessary documentation and information, your application is submitted to the lender.
2. Mortgage Approval in Principle: This can often be obtained within a few days. It’s a conditional offer from the lender, which gives you an idea of how much they might be willing to lend you.
3. Valuation and Surveys: The lender will want to carry out a valuation survey to confirm the property’s worth. Depending on the survey type, this can take 1-2 weeks to schedule and complete.
4. Formal Mortgage Offer: Once the lender is happy with the valuation and all other checks (like affordability and credit checks), they’ll issue a formal mortgage offer. This usually takes 1-2 weeks following the valuation.
5. Legal Work: Concurrently, your solicitor or conveyancer will be conducting searches and handling the legal aspects of the property purchase. This can be the most variable part of the process, taking anywhere from a few weeks to a couple of months, depending on the complexities.
6. Exchange and Completion: Once all legal work is finished, you’ll exchange contracts, and a completion date is set. On the day of completion, the mortgage funds are transferred to the seller, and you become the legal owner of the property.

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

If you’re looking to buy a holiday let in the UK, you’ll typically need a specific type of mortgage known as a holiday let mortgage or a holiday home mortgage.

A holiday let mortgage is different from a standard residential mortgage or a buy-to-let mortgage. A residential mortgage is for properties where you or your family live, and buy-to-let mortgages are for properties that you rent out on a long-term basis to tenants.

A holiday let, on the other hand, is a property that’s rented out on a short-term basis to holidaymakers, and therefore it requires a holiday let mortgage. Lenders see holiday lets as a higher risk compared to standard residential or buy-to-let properties because the income from holiday lets can be more variable, and the property may be empty for parts of the year.

Because of this increased risk, holiday let mortgages often have more stringent lending criteria. They typically require a larger deposit (often 25-40% of the property’s value), and lenders may also require you to demonstrate that you have enough personal income to cover the mortgage payments during any periods when the property isn’t let out.

As with any mortgage, it’s important to shop around and compare different lenders’ rates and terms and to seek advice from a mortgage broker or financial advisor if you need it. They can help you understand the costs and benefits of different mortgage products and find the best mortgage for your needs and circumstances.

How to get a holiday let mortgage

Getting a holiday let mortgage involves a number of steps, similar to a regular mortgage, but with some additional considerations due to the nature of holiday let properties. Here’s a general step-by-step guide:

1. Research: Familiarise yourself with the holiday let market, understand the demands, and evaluate if it aligns with your financial goals. It’s beneficial to understand occupancy rates, local tourism, and potential rental income.
2. Property Selection: Decide on the type and location of the property you want to buy. Consider factors like proximity to tourist attractions, transport links, local amenities, etc., as these will influence your property’s attractiveness to holidaymakers.
3. Financial Assessment: Before applying, assess your financial situation. Remember, lenders often require that you have a separate income aside from the potential rental income. They typically also require a larger deposit for a holiday let mortgage, often 25-40% of the property value.
4. Mortgage Broker Consultation: Speak with a mortgage broker who specialises in holiday let mortgages. They can help you understand the different products available, explain the application process, and guide you towards lenders who are most likely to accept your application based on your circumstances.
5. Application Preparation: Gather all necessary documents. This typically includes proof of income (payslips, tax returns), bank statements, identification, and information about the property you’re looking to buy. Your broker may also ask for a business plan or projections of the property’s potential rental income.
6. Submit Application: Once you’ve found a suitable mortgage product and prepared all your documentation, your broker will submit the application on your behalf.
7. Property Valuation: The lender will arrange a property valuation to ensure the property is worth the amount you wish to borrow.
8. Mortgage Offer: If the lender is happy with the valuation and your financial situation, they will issue a mortgage offer.
9. Legal Work: A solicitor will handle the legal work involved in transferring the property to your name. They will liaise with the seller’s solicitor, conduct necessary searches, and arrange for the signing of contracts.
10. Completion: Once all the legal work is complete, the lender will release the funds and the property ownership will be transferred to you.

Differences between a buy-to-let mortgage and a holiday-let mortgage

Buy-to-let mortgages and holiday-let mortgages are both designed for properties that you plan to rent out, but there are important differences between them:

Type of Tenancy: Buy-to-let mortgages are intended for properties that will be rented out on long-term contracts, usually at least six months. Holiday let mortgages are for properties that will be rented out on a short-term basis, often to tourists or vacationers, for periods of a few days to a few weeks.

Income Assessment: When applying for a buy-to-let mortgage, lenders typically assess the rental income based on a standard tenancy agreement. They usually require the potential rental income to cover 125-145% of the mortgage repayments. In contrast, for holiday let mortgages, lenders often require that the expected rental income covers around 145% of the mortgage repayments, and they may take into account peak and off-peak rental rates.

Personal Income: Some holiday let mortgage lenders also require the borrower to have a separate source of personal income, as holiday rentals can have periods with no bookings, whereas this is less commonly a requirement with buy-to-let mortgages.

Deposit: The required deposit for a holiday let mortgage is often larger than that for a buy-to-let mortgage. It’s not uncommon for lenders to require a 25-40% deposit for holiday let properties.

Availability for Letting: For a property to qualify for a holiday let mortgage, it often needs to be available for letting to the public for a certain number of days per year (for example, 210 days in the UK) and actually let for a certain number of days (for example, 105 days in the UK).

Tax Treatment: Tax treatment can also be different. Holiday let properties that meet certain criteria may qualify for tax advantages that aren’t available with standard buy-to-let properties, such as being able to claim Mortgage Interest Relief and Capital Gains Tax relief.

Can I use a buy-to-let mortgage for a holiday let?

Typically, you cannot use a buy-to-let mortgage for a holiday-let property. The two types of properties are seen differently by lenders due to the different nature of the rental income.

A buy-to-let mortgage is designed for properties that will be rented out on a long-term basis, typically on six months or annual contracts. The rental income for these properties is generally stable and predictable.

On the other hand, a holiday let property is rented out on a short-term basis to holidaymakers, often for periods of a few days to a few weeks at a time. The income from these properties can be less predictable because it can vary with the season and other factors.

Because of these differences, lenders often have different lending criteria for buy-to-let and holiday-let mortgages. For example, they may require a higher deposit for a holiday let property, and they may require the borrower to have a separate source of income.

If you have a buy-to-let mortgage on a property and you want to start using it as a holiday let, you should contact your lender to discuss this. Using the property as a holiday let without the lender’s consent could be a breach of your mortgage terms and conditions.

Similarly, if you want to buy a holiday let property, it’s important to get the right type of mortgage.

Can I claim tax relief on my holiday let?

Yes, you may be able to claim certain types of tax relief on a holiday let property in the UK, but it must meet certain criteria to qualify. These properties are classified by HM Revenue and Customs (HMRC) as Furnished Holiday Lettings (FHLs), and they must meet the following conditions:

1. The property must be located in the UK or in the European Economic Area (EEA).
2. The property must be furnished adequately for normal occupation.
3. The property must be available for commercial letting as holiday accommodation to the public for at least 210 days in the tax year.
4. The property must be commercially let as holiday accommodation to the public for at least 105 days in the tax year.
5. You cannot count any days where you let the property to longer-term tenants (more than 31 days at a time) towards the 105-day threshold unless the 31 days of continuous let only arise because of unforeseen circumstances like COVID-19.
6. The total period of longer-term occupation, known as the ‘pattern of occupation condition’, must not exceed 155 days during the tax year.

If your property meets these conditions, then you can take advantage of certain tax benefits, including:

Mortgage Interest Tax Relief: You can deduct the full amount of interest paid on a mortgage loan from your rental income before calculating your tax liability, unlike traditional residential buy-to-let, where the tax relief is being phased down to a basic rate tax credit.

Capital Allowances: You may claim capital allowances for the cost of fixtures and fittings, improving the property and equipment used outside the property, like vans and tools.

Capital Gains Tax (CGT) Reliefs: Several types of CGT relief can apply to FHLs when you sell your property. These include Rollover Relief, Holdover Relief, and Entrepreneurs’ Relief.

Pension Contributions: Profits from FHLs count as earnings, so they can be used for calculating or ‘relevant UK earnings for the purpose of making tax-deductible pension contributions.

How much deposit will I need for a holiday let?

The deposit required for a holiday let mortgage is typically higher than for a standard residential mortgage due to the increased risk perceived by the lenders. The deposit, also known as Loan-To-Value (LTV), is a percentage of the property’s total purchase price that you are required to pay upfront.

For holiday let mortgages in the UK, the deposit is typically around 25-40% of the property’s value. This means if you were purchasing a holiday let property valued at £300,000, you would likely need a deposit of between £75,000 and £120,000.

However, the exact amount can vary based on several factors including:

1. The lender’s specific policies and criteria
2. The borrower’s credit history
3. The expected rental income from the property
4. The borrower’s existing personal income

Is a holiday-let mortgage more expensive?

Holiday let mortgages can indeed be more expensive than standard residential or buy-to-let mortgages due to a few factors:

Higher Interest Rates: Holiday let mortgages often come with higher interest rates. This is because lenders consider them to be higher risk, due to the potentially more variable income from a holiday let property compared to a residential property or long-term rental.

Larger Deposit: Lenders typically require a larger deposit for holiday let mortgages, often between 25-40% of the property’s value, compared to a residential mortgage where you might be able to borrow up to 95% of the property’s value.

Fees: There may also be higher arrangement fees or other associated costs with holiday let mortgages.

The overall cost of a holiday let mortgage will also depend on your personal circumstances, the specific property, and the lender’s criteria. While they can be more expensive, it’s worth noting that holiday let properties can also potentially bring in higher rental income than long-term rentals, particularly in popular tourist destinations.

What about holiday-let mortgages for an overseas property?

Holiday let mortgages for overseas properties can be more complex than for properties located in the UK. These types of mortgages exist, but they often come with more stringent lending criteria and may be offered by a smaller selection of lenders.

Here are some factors to consider:

Jurisdiction: Lenders may be restricted in the countries they can offer overseas mortgages. Countries within the European Union or European Economic Area are more likely to be accepted.

Currency: The currency in which you take the mortgage can be a significant factor. Currency fluctuations can affect the value of your repayments if the mortgage is taken in a different currency than your income. Some lenders may only provide a mortgage in the local currency.

Legal Considerations: Different countries have different laws and regulations around property ownership, taxes, and inheritance. It’s important to understand these before buying a property overseas. It can be beneficial to hire a local solicitor who understands the property laws in the country where you’re buying.

Higher Deposit: Lenders often require a higher deposit for overseas properties. It’s not uncommon for this to be 30-40% of the property’s value, or even more in some cases.

Income: Lenders will want to ensure that you have a stable income and that you can afford the mortgage repayments. If you’re relying on rental income from the property to cover the repayments, you’ll need to demonstrate that this income is reliable.

Insurance: Some lenders may require you to have certain types of insurance in place, such as buildings insurance or life insurance.

Language Barrier: All documentation and negotiations will be in the language of the country where you’re buying. If you’re not fluent in the language, this can add another layer of complexity.

If you’re considering purchasing a holiday let property overseas, it’s a good idea to get advice from a mortgage broker who specialises in overseas property. They can help you understand your options and guide you through the process. It’s also worth seeking legal and tax advice to understand all the implications of buying a property overseas.

What are the tax implications of a holiday let?

In the UK, the tax implications of owning a holiday let property are complex and depend on a number of factors.

Here are some key tax considerations for a Furnished Holiday Let (FHL):

Income Tax: You will need to declare any income earned from the property on your Self Assessment tax return and pay Income Tax on your profits. Profits are typically calculated as your income from letting the property minus allowable expenses.

Allowable Expenses: You can deduct certain costs from your rental income to reduce your taxable profit. These can include mortgage interest, insurance, utility bills, cleaning, advertising fees, and maintenance and repairs (but not improvements).

VAT: If your total income from rentals (and any other VAT-able income) is above the VAT threshold, currently £85,000, you will have to register for VAT and charge VAT on the rental income.

Capital Gains Tax: When you sell a FHL property, you may have to pay Capital Gains Tax on any profit you make. However, some reliefs may apply that can reduce your tax bills, such as Business Asset Rollover Relief, Entrepreneurs’ Relief, or Business Asset Disposal Relief.

Council Tax/Business Rates: If the property is available to let for short periods that total 140 days or more per year, it might be considered a self-catering property and will be subject to Business Rates rather than Council Tax.

Inheritance Tax (IHT): FHL businesses may qualify for Business Relief, which could reduce the IHT payable on your estate when you die.

National Insurance: If you’re actively involved in running your FHL business (as opposed to using a management company), you might be classified as self-employed for this income and have to pay Class 2 or 4 National Insurance contributions.

Taxation can vary significantly based on individual circumstances, and regulations may change over time, so it’s recommended to get advice from a tax advisor who understands FHL properties. They can help you to minimise your tax liabilities and ensure that you are complying with all tax regulations.

Alternatives to a holiday-let mortgage

If you’re considering purchasing a holiday let but find that a holiday let mortgage may not be the best fit for your situation, there are a few alternative financing options you might consider:

Buy-to-Let Mortgage: If you plan on renting out the property for longer periods (i.e., six months or more), a buy-to-let mortgage might be more suitable. Just bear in mind that you should seek permission from the lender if you plan to let the property on a short-term basis, as this might go against the mortgage terms.

Residential Mortgage: If you plan to live in the property for a significant part of the year and only let it out occasionally, a residential mortgage might be more suitable. However, you must check with the lender as to what extent they allow the property to be let, as most have restrictions.

Second Home Mortgage: If you plan to use the property as a second home and only rent it out infrequently, a second home mortgage could be an option. These types of mortgages usually have terms that allow for occasional renting.

Commercial Mortgage: If the property is part of a larger holiday let business, a commercial mortgage might be appropriate. However, commercial mortgages usually have more stringent eligibility criteria and may require a larger deposit.

Bridging Loans: If you need finance quickly and for a short period, a bridging loan might be a viable option. These loans are often used to ‘bridge’ the gap between buying a property and securing longer-term financing.

Remortgaging a Current Property: If you already own a property with substantial equity, you might consider remortgaging to release some of that equity to purchase the holiday let.

Cash Purchase: If you have enough savings, you could buy the property outright. This option avoids the need for borrowing and the associated costs.

Peer-to-Peer Lending or Crowdfunding: These are more unconventional ways of financing a property purchase but could be worth considering depending on your circumstances.

Can I get a normal mortgage and rent out my holiday let?

If you’re considering using a normal residential mortgage for a property and then renting it out as a holiday let, it’s important to understand that this could potentially breach the terms and conditions of the mortgage.

Residential mortgages are designed for properties where the owner or their family lives in the property most of the time. They are typically not designed for properties that are rented out, especially not on a short-term basis like a holiday let.

If you want to use a residential property as a holiday let, you should inform your mortgage lender and ask for their permission. They may agree to this, or they may not. It’s possible they might ask you to switch to a different type of mortgage, such as a buy-to-let or holiday-let mortgage, which could involve different terms and conditions and potentially higher interest rates.

Similarly, if you already have a residential mortgage on a property and you want to start renting it out, you should inform your lender. If you don’t, you could be in breach of your mortgage terms and conditions, and the lender could take action against you, including demanding full repayment of the mortgage.

Finally, if you’re buying a property with the intention of using it as a holiday let, you should ideally apply for a holiday let mortgage or a buy-to-let mortgage, depending on the exact circumstances. These types of mortgages are specifically designed for rental properties, and the lender will take into account the potential rental income when deciding whether to offer you a mortgage.

What mortgage do I need for a static caravan?

Obtaining a mortgage for a static caravan can be quite challenging because many mainstream lenders do not classify them as traditional real estate properties. This is primarily because static caravans are often located on leased land and are not considered permanent structures and, therefore, do not meet typical property mortgage criteria.

However, there are still ways to finance a static caravan:

Specialist Lenders: Some specialist lenders or credit providers may offer personal loans specifically designed for purchasing a static caravan. These loans are more akin to an auto loan than a traditional mortgage, with higher interest rates and shorter terms.

Dealer Finance: Caravan dealers often provide finance options when you buy directly from them. These are also similar to auto finance and are usually arranged through a partnership with a finance company.

Personal Loans: Depending on the cost of the caravan and your credit rating, you might consider taking out a personal loan. However, personal loans typically have higher interest rates than mortgages.

Cash Purchase: If you have enough savings, you could consider buying the static caravan outright. This avoids the need to pay interest on a loan.

Remortgaging: If you already own a property with substantial equity, you might consider remortgaging to release some of that equity to purchase the static caravan.

Why do Holiday-Lets require a specialist mortgage?

Holiday let properties require a specialist mortgage due to the unique financial and operational characteristics of these properties, which are different from those of standard residential or buy-to-let properties.

Here are some reasons why holiday let properties usually require a specialist mortgage:

Variable Income: Unlike a standard buy-to-let property that typically has a long-term tenant, a holiday let property can have periods of high occupancy (like summer or holiday seasons) followed by periods of low or even no occupancy. This can result in a more variable and less predictable rental income, which lenders consider to be a higher risk.

Higher Running Costs: Holiday let properties often have higher running costs than standard rental properties. These costs can include regular cleaning, management fees, higher utility usage, and higher maintenance costs due to the wear and tear from a high turnover of guests. Lenders need to be confident that the borrower can cover these costs as well as the mortgage repayments.

Regulatory Requirements: Holiday lets are subject to different regulatory requirements than long-term rentals, such as health and safety regulations and possibly business rates instead of council tax.

Lender Experience and Expertise: Not all lenders have experience or expertise in holiday let properties. Lending for holiday lets requires an understanding of the tourism market, local occupancy rates, seasonal income fluctuations, and the overall business model of holiday lets.

Mortgage Interest Tax Relief: Holiday let owners could still claim mortgage interest tax relief, unlike buy-to-let landlords who had this relief phased out. This has resulted in more investors turning to the holiday let market, but the specialist nature of the mortgage product remains.

These factors mean that holiday let mortgages are usually provided by specialist lenders or building societies, who have experience in this market and can adequately assess the risks and returns. They will typically take into account the potential rental income from the property when deciding how much to lend, and they may require the borrower to have a certain level of personal income as well.

What insurance and legal considerations should I be aware of with a holiday let mortgage?

Owning a holiday let property comes with a unique set of insurance and legal considerations. Here are a few key factors:

Insurance:

Building and Contents Insurance: Just like any property, you will need to ensure that you have adequate building insurance to cover any structural damage. Furthermore, since holiday lets are typically rented out furnished, you should consider contents insurance to cover any damage to or loss of the items in the property.

Public Liability Insurance: This covers you in the event that a guest or third party is injured on your property or their property is damaged and you are found to be legally liable.

Loss of Rent Insurance: This can protect your income in case your property becomes uninhabitable due to an insured event (like fire or flood), resulting in a loss of rental income.

Legal Considerations:

Regulatory Requirements: In the UK, you must comply with a variety of regulations as a holiday let owner. These include but are not limited to, fire safety regulations, gas safety regulations, and furniture and furnishings fire safety regulations.

Mortgage Agreement: You must comply with the terms of your holiday let mortgage agreement. This might include stipulations about how often the property needs to be available for letting, maximum occupancy rates, and maintaining certain insurance coverage.

Planning Permission and Licenses: Depending on the local authority, you might need planning permission or a license to use a property as a holiday let. Check with your local council for any specific requirements.

Furnished Holiday Lettings (FHL) Criteria: If you plan to take advantage of the specific tax benefits available to Furnished Holiday Lettings in the UK, you will need to ensure that your property meets the specific criteria set out by HM Revenue and Customs (HMRC).

GDPR Compliance: If you’re collecting personal data from your guests, you’ll need to ensure you’re complying with the General Data Protection Regulation (GDPR).

Council Tax/Business Rates: Depending on how often you let the property, you may be required to pay business rates instead of council tax.

It’s advisable to consult with legal and insurance professionals to ensure that you have appropriate coverages in place and are compliant with all legal requirements. These considerations may vary depending on your specific situation and the location of your property.

Are there brokers who specialise in the holiday let mortgages, and what are the benefits of using one?

Yes, there are mortgage brokers who specialise in holiday let mortgages. Using a specialist broker can offer several benefits:

Expertise and Experience: A broker who specialises in the holiday let mortgages will have a deep understanding of this niche market. They’ll be familiar with the specific requirements and criteria of different lenders, which can help you find the most suitable mortgage for your needs.

Access to More Lenders: Some lenders, particularly those specialising in holiday let mortgages, only work through brokers. Therefore, by using a broker, you can gain access to a wider range of mortgage products than you might find on your own.

Time and Effort Savings: Applying for a mortgage can be time-consuming and complex. A broker can handle much of the legwork for you, from gathering paperwork to liaising with lenders, which can save you time and effort.

Better Deals: Because of their relationships with a wide range of lenders, brokers might be able to secure more favourable terms or rates than you might achieve by approaching lenders directly.

Personalised Service: A good broker will assess your personal situation and objectives and use this information to find the most appropriate mortgage for your needs. They can also offer advice on how to improve your chances of approval.

Support Through the Application Process: The process of applying for a holiday let mortgage can be complex. A broker can guide you through the application, help you to complete the paperwork correctly, and address any issues that arise.