Table of Contents
- What is a holiday let mortgage?
- How do holiday let mortgages work?
- What holiday let mortgage criteria do lenders consider?
- Tax on holiday lets
- Pros and cons of holiday lets
- Who offers holiday let mortgages?
- How to get a holiday let mortgage
- Can I use a buy-to-let mortgage for a holiday let?
- Can you get a holiday let mortgage for an overseas property?
- Can I get a holiday let mortgage on an Airbnb property?
- Can you live in your holiday let?
- What are the alternatives to a holiday let mortgage?
Owning a holiday property you can escape to and rent out is likely to be on many wishlists. If finding the funding to buy a holiday let is the main sticking point, a holiday let mortgage could help that dream come true.
Read on to learn how a holiday let mortgage can help provide you with an income and a ready-made place to stay if you want to get away.
What is a holiday let mortgage?
A holiday let mortgage is a loan you take to buy a property that you intend to rent out as holiday accommodation for some of the year as a business.
Mortgages for holiday lets are different to traditional buy-to-let mortgages, which are designed to fund the purchase of rental property that you want to let out full time.
Holiday let mortgages should also not be confused with holiday home mortgages, which are loans to buy a second property that only you, or your family and friends, will holiday in for free.
How do holiday let mortgages work?
Holiday let mortgages can be available on a capital repayment or interest-only basis, just like many other types of mortgages. Borrowers are expected to make repayments to the lender each month, and early repayment charges will generally apply if you want to pay off your mortgage early.
Holiday let mortgage interest rates can be fixed or variable, but will often be higher than comparable residential mortgages. This is because of the extra risk lenders are taking in lending against a property that might only deliver a rental income at certain times of the year.
The lending criteria for holiday let mortgages are also usually stricter for similar reasons. This means you’ll usually need a deposit of between 25% and 30% of the property value to get a holiday let mortgage, and maybe even as high as 40%.
What holiday let mortgage criteria do lenders consider?
The criteria for getting a holiday let mortgage tends to be stricter than for other types of mortgages. Criteria can differ between lenders but proving you can afford a holiday let mortgage is key.
The main holiday let mortgage criteria that a lender will look at include:
Rental yield: Your holiday let will need a projected rental income of at least 125% to 145% of your monthly mortgage repayments.
Your personal income: Because holiday let rental income is uncertain and could dry up altogether at certain times of the year, lenders want to know you have sufficient personal income to cover your repayments during these periods. Typically, they’ll look for a minimum income of between £20,000 and £40,000 a year, on top of the income from your holiday let.
Your personal circumstances: For additional security, lenders typically prefer you to be a homeowner already, and usually over the age of 21. Maximum age limits may also apply.
Deposit and loan to value (LTV): A minimum deposit of between 25% and 30% of the property value is usually required, with the maximum holiday let mortgage loan-to-value (LTV) usually 75% LTV. The best mortgage rates are usually reserved for those with a larger deposit and lower LTV.
Your credit history: Having a good credit score could mean that lenders are more likely to approve your application.
The property itself: The type of holiday let home you’re buying, and how easy it’s likely to be to sell on, is important to lenders. If the property is unusual in its construction or location, you might find it harder to get a holiday let mortgage.
Tax on holiday lets
There used to be several tax benefits if your holiday let qualified as a ‘furnished holiday letting’ (FHL) under HM Revenue & Customs (HMRC) rules.
However, with effect from April 2025, the FHL regime is abolished, and these advantages lost. Instead tax rules for furnished holiday lets are aligned with those seen on long-term residential rental properties.
Among the main differences, it means holiday let owners no longer qualify for mortgage interest relief at higher income tax rates; instead, this is capped at 20%, the same as with a standard buy-to-let property. Capital allowances specific to fixtures and fittings on holiday lets, and various reliefs relating to capital gains tax, also no longer apply.
Whether you already own a holiday let, or are considering buying one in the future, seeking professional advice will allow you to work out how these changes affect you, and the tax you pay.
Do you pay stamp duty on holiday lets?
If you buy another property in addition to your main home, including a holiday let, you may have to pay a higher rate of stamp duty.
In England and Northern Ireland, a minimum 5% surcharge is usually payable when purchasing an additional property, on top of the standard stamp duty charge.
Scotland’s additional dwelling supplement is charged at 8% of the total property price, while a minimum rate of 5% is payable in addition to normal Land Transaction Tax on additional property bought in Wales.
Pros and cons of holiday lets
Buying a holiday let has some clear benefits but several potential drawbacks to be aware of too.
Advantages of a holiday let home
- It is an investment with the potential to deliver an income stream.
- Holiday lets can often charge higher rates than traditional rental properties, so you could make more money if it’s regularly booked up.
- You, your family and your friends can stay there.
Disadvantages of a holiday let home
- Paying the bills – gas and electricity, council tax, insurance, and so on – will be down to you, not the guests.
- Lending criteria are usually strict and mortgage rates are often higher compared to other types of mortgages.
- Greater uncertainty of rental income means you may need to fall back on your personal income or savings to cover mortgage repayments.
- The property will need managing and cleaning between guests and maintained to a high standard.
Who offers holiday let mortgages?
Holiday let mortgages are mainly offered by some building societies and specialist lenders. You may want to use a mortgage broker to help you find the best holiday let mortgages and to give yourself the best chance of application success.
How to get a holiday let mortgage
To give yourself the best chance of getting a holiday let mortgage you can:
Gather your paperwork
All of the documents usually needed when applying for a mortgage – such as proof of your identity, address and income – will be required for a holiday let mortgage as well. Recent bank statements and your latest mortgage statement for your own home will also usually be needed.
Create a business plan
As you’ll effectively be running a holiday let business, lenders may want to see some form of a business plan. This should detail the rental income you expect to receive, and include evidence to support your estimate, perhaps based on adverts for similar holiday lets in that area. You should also list any expenditure you’re likely to incur, including utility bills, council tax, insurance, maintenance and management of the property.
Check your credit score
Making sure your credit score is as good as it can be can give you a better chance of being approved. Check your credit record and take steps to improve your credit score if you can.
Talk to a mortgage adviser
Getting expert mortgage advice is sensible when arranging a mortgage. With holiday let mortgages being less widely available, and the additional requirements you’ll need to meet, the support of an adviser throughout the application process could be helpful.
Can I use a buy-to-let mortgage for a holiday let?
No, it isn’t usually possible to use a buy-to-let mortgage for a holiday let. This is because holiday let mortgages are based around a property being rented out for shorter periods, delivering varying levels of income and perhaps standing empty at different points of the year. Buy-to-let mortgages are offered on the basis that tenants will rent over the longer term.
Can you get a holiday let mortgage for an overseas property?
Getting a holiday let mortgage for a property abroad is possible, but you’ll usually need to approach one of the bigger high street banks that have a presence in the country you want to buy or a specialist broker to get one.
However, remember to be cautious when making big financial transactions abroad and seek specialist support in the country you’re buying in to understand its financial, tax legislation and legal rules.
Can I get a holiday let mortgage on an Airbnb property?
Airbnb properties may be eligible for holiday let mortgages, but you’ll need to check with individual lenders whether they fall within their specific lending criteria.
Can you live in your holiday let?
Holidaying in your holiday let property may be allowed, but it cannot be the main residence where you live all of the time. Specific criteria may differ between lenders, so be sure to check the terms of the holiday let mortgage.
What are the alternatives to a holiday let mortgage?
If your finances allow, you may want to buy your holiday let home outright as a cash buyer. That way, you won’t need a holiday let mortgage and the income it delivers (after tax and other expenses) will all be yours, rather than going towards mortgage repayments. If you’re only a little short of having all the funds you need, you could consider using a personal loan to cover the difference.
Alternatively, if you have equity in your main home, you could raise funds by remortgaging to release equity. Depending on the sums, this could be used as a deposit for a holiday let mortgage, or you may have enough to buy the holiday let outright. But there are some potential drawbacks to think about carefully, too.
» MORE: How to release equity to buy a second home
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