Holiday Let Mortgages

Ever dreamed of owning a second home by the beach, or in your favourite UK holiday spot? The good news is a holiday let mortgage could help achieve it. We look at how to get a holiday let mortgage, the tax implications and how much it will cost.

Angela Kerr Director, Editor

If you do it right, owning a holiday let means you’ll get good returns on your investment and a property that you can enjoy too. And if you need to borrow cash to make your dreams a reality you’ll need a holiday let mortgage. We explain everything you need to know.

What is a holiday let mortgage?

Holiday let mortgages are designed for people looking to borrow money to buy a property that will be let out on a short-term basis to tourists as a business. It differs from a holiday home mortgage, where you borrow money to buy a second home that only you will use.

What’s the difference between Buy to Let and holiday let?

With Buy to Let, you let out the property on a long-term basis. But while Buy to Let has long been a popular property investment, holiday lets have become an attractive alternative. Not only can they typically be let to holiday makers for much more than a normal rental property, furnished holiday lets are treated differently by the taxman (although this is set to change, read on for more information).

For example, if you own a holiday let, you can offset the full amount of mortgage interest against the rental income when calculating profits. Buy to Let investors can no longer do this. Instead, you’ll now receive a tax-credit, based on 20% of your mortgage interest payments.

However, when it comes to holiday lets, to qualify as a holiday let for tax purposes, you must meet certain HMRC terms. Your property must be available for letting as furnished holiday accommodation for at least 210 days per year and let out for at least 105 days a year. And any continuous stay of longer than 31 days will not count towards the 105 days a year, unless certain conditions are met. If your property qualifies as a furnished holiday let, HMRC says you can claim capital gains tax relief for traders when you sell.

For tax advice, you may want to speak to an independent advisor. We partner with Unbiased who can connect you with local tax advisors in your area.

Holiday let tax changes in 2024

In the 2024 Spring Budget, the Chancellor announced that the tax regime for furnished holiday lettings would be abolished from 6 April 2025 and they will be treated in the same way as a standard Buy to Let.

What are the tax implications of a holiday let?

When buying a second property, there are other tax considerations to keep in mind, however. Any profit you make from the holiday let will be classed as income, which must be declared to HMRC and will be taxed at your applicable income tax rate. You should also consider:

Stamp duty for second homes

When you buy an additional residential property worth more than £40,000 you’ll usually have to pay the additional stamp duty for second homes rate, whether you’re buying a second home as an investment Buy to Let, for a holiday home or any other purpose. Read more in our guide Stamp duty for second homes explained.

Second home council tax

You may be able to avoid paying second home council tax on your holiday let and pay business rates instead but there is criteria you’ll need to meet. Find out more in our guide Second home council tax explained.

Do I need a specialist holiday let mortgage?

Yes. If you need to borrow money to buy your holiday home, you will need a specialist mortgage for a holiday let. Traditional residential mortgages do not usually allow you to let out your home and a Buy to Let mortgage may not be suitable.

The problem with a Buy to Let mortgage is that to work out your affordability, the lender will determine an annual rental figure based on the assumption that it will be let on an assured shorthold tenancy of six to 12 months. This means most people wanting a holiday let mortgage won’t meet the lending criteria for a Buy to Let mortgage.

A holiday let income will fluctuate, in peak months it could be considerably higher than Buy to Let income, but it isn’t guaranteed for months. So, the amount a lender will loan you with a holiday let mortgage is based on an income projection figure rather than a simple multiple of potential rental income.

Use our fee free mortgage broker service to help you find the right holiday let mortgage

Holiday let mortgage criteria

It will vary by lender but for most holiday let mortgages you’ll need:

• A deposit of at least 25% of the property’s value
• A minimum income of £20,000 to £40,000 per year, in addition to your rental income
• A projection of how much rental income you expect to make from your holiday let; you’ll usually be required to make at least 125-145% of your monthly mortgage repayments in rental income. A rental income from your holiday home that will cover your mortgage payments plus a safety margin of 25% to 45%
• Some lenders limit the number of holiday lets that you can own.

How much will I be able to borrow?

As well as needing a deposit and a satisfactory rental projection, lenders will also look at your income and outgoings too. So, if you already have a big mortgage on your own property that could significantly impact what you can borrow for a holiday let. This is because the lender wants to make sure you can afford to meet the repayments on their mortgage if there is a period when the property isn’t let.

The type of property you buy will also affect your ability to get a holiday let mortgage. Lenders want to know the property could be easily sold, so they won’t usually give you a mortgage on a holiday park home or somewhere that is limited to just being a holiday home.

Holiday let mortgage example

So, as a general example, if you wanted to buy a holiday let worth £250,000 you’d need to be able to put down at least a £75,000 deposit. The property would also need to be able to generate at least £11,000 a year rental income, assuming a mortgage interest rate of 4.5%.

Holiday let mortgage calculator

The amount a holiday let mortgage will cost you each month will depend on the amount you’re borrowing, the interest rate and the term. To find out how much you would pay on a mortgage, you can use a holiday let mortgage calculator.

How do I find the best holiday let mortgage deals?

The quickest and easiest way to find the best holiday let mortgage rates is to speak to a fee-free mortgage broker. They’ll shop around for you and they may have access to holiday let mortgage rates that are only available to brokers. The bigger your deposit, the better the holiday let mortgage rates you’ll usually get access to.

But buying the right property in the right place is also important – location can be a big factor in how much rental income you may be able to achieve. So do your research and speak to local letting agents to understand the demand in the area. This will help you create a rental income projection which the lender will use when assessing affordability.

Are holiday let mortgages popular?

Yes. In fact, the number of holiday let mortgage products available grew from 74 in August 2020 to more than 400 in January 2023, Moneyfacts data shows.

How do I apply for a holiday let mortgage?

The best place to start is to speak to a fee-free mortgage broker about your options. Once you’ve had an offer accepted on a property, it’s time to get your documentation together and apply for a holiday let mortgage.

Where can I get a holiday let mortgage?

Whilst the number of holiday let mortgage products is increasing, most of the big lenders don’t offer holiday let mortgages. Leeds Building Society and Principality Building Society both offer them, as well as some smaller building societies such as The Cumberland, Furness Building Society and Bath Building Society.

But the best way to make sure you find the right mortgage for your holiday let, and ensure your chances of a successful application, is to use a mortgage broker. They know the market and may be able to access specialist mortgages that you can’t find on the open market.

Is a holiday let a good investment?

Buying a holiday let can be a good way of generating income if you do it right, but it comes with risks. For example, not only do you need to consider the fact you’ll need to cover the mortgage payments each month, whether or not you let the property out, you’ll also need to either manage your holiday let yourself, or pay someone else to do so. Plus, you’ll need to consider whether you can afford to pay for any major repairs the property may need and ongoing maintenance. We strongly advise taking professional financial advice before buying a holiday let property.

With more than 27,000 regulated financial advisers, our partners at Unbiased can match you with the right adviser. Find a financial adviser today.

Can I get a mortgage for a holiday let for an overseas property?

If you’re buying abroad, it’s more complicated. Having expert advice in all aspects of the purchase, including the mortgage, will be crucial. It may be that a UK bank that operates in the country where you want to buy a holiday let is your best bet or it may be a lender in the country where you intend to buy is the right path. A mortgage broker will be able to advise you.

Can I let my property on Airbnb?

If you want to rent out your current home via a site like Airbnb, whether or not you can do this will depend on which mortgage you have because some don’t allow it. So check with your broker or lender. Read more information in our guide Renting out your home as a holiday let.

Is it possible to get a mortgage for more than one holiday let?

This depends. Some mortgage lenders limit how many holiday lets you can own – some say you can’t have more then one – while others are more flexible.

What are the alternatives to a holiday let mortgage

You don’t have to use a mortgage to buy your holiday let. You could look at alternative ways to finance the property.

• Pay in cash: If you can afford to do it, then you could buy a property mortgage-free. That way you don’t have to factor mortgage repayments into your costings, worry about being accepted for a mortgage or what could happen to interest rates in the future.
• Remortgage your current home: Another option is to remortgage your own home to release enough money to put down a deposit on your holiday let mortgage. If you have paid a large chunk of your mortgage off and your home has increased in value, you might even be able to use the equity to buy your holiday let mortgage free.
• Personal loan: If you are able to stump up most of the money needed for a holiday let, then you could consider taking out a personal loan for the rest that you need. You can usually borrow up to £25,000 this way, but some lenders may consider loans for larger amounts.

Need investment advice on a holiday let? Find an independent financial adviser here

What is involved in buying a holiday let?

There are different considerations when buying a holiday let compared to buying a home to live in. Here are some steps to take:

• Do your research: Speak to holiday letting agents to get a professional opinion of how much income and the potential occupancy levels you can expect from the property and the area. Find out the standard of decor and furnishings you should offer.
• Buy carefully: If you plan to buy a property that needs renovating before you can let it out you need to factor this into your calculations. You may decide you’re better off buying a property that is suitable to be let out straight away.
• Check for safety: There are legal requirements for letting a holiday property you must comply with and you must also keep up to date with new and updated regulations.
• How will you market it? Choosing a holiday lettings agency to market your property will be easier but their fees will eat into your profits.

How is a holiday home mortgage different?

If you are buying a holiday home that you don’t plan to let out, you can get a holiday home mortgage on a second home even if you’re still paying a mortgage on your main home. You’ll need a large deposit; typically at least 25% of the value. And you’ll need a healthy income so you can prove to the lender that you can afford the repayments on the mortgage on your main home and the second mortgage. For more information read our guide What you need to know about buying a second home.

Use our fee free mortgage broker service to help you find the right holiday let mortgage

Frequently asked questions