The ins and outs of getting a holiday let mortgage

In this guest-authored article, Paul Blaking, Direct Mortgage Manager, from Suffolk Building Society looks at what you need to know when you get a holiday let mortgage in the UK.

With staycations on the rise, UK holiday rentals are in high demand. Investing in a holiday let can be a great opportunity. However, financing one is different from securing a standard residential or buy to let mortgage. You’ll need a specialist holiday let mortgage. Understanding the criteria, costs, and process can help make the journey smoother.

What is a holiday let mortgage?

A holiday let mortgage is meant for properties rented out as short-term holiday accommodation, all year round. This differs from buy to let mortgages, which cater to long-term tenancies.

To qualify, the property must be available for rent for at least 210 days per year and let for at least 105 days. Lenders assess rental income, not just personal income, to determine affordability.

There are also expat holiday let mortgages available for UK nationals living and working abroad. These provide people with somewhere to stay in the UK when they return for holidays, and to see family and friends.

Differences between holiday let and buy to let mortgages

Though both involve renting out a property, there are key differences. Buy to let properties are leased to tenants on a minimum six-month contract, ensuring steady income. Holiday lets cater to short-term stays, meaning rental income fluctuates with seasonal demand.

Lenders assess income differently for each mortgage type. Buy to let lenders focus on monthly rental yield, while holiday let lenders consider seasonal rental income. Some lenders have different minimum income requirements for each.

Tax treatment also varies. Holiday lets can qualify as Furnished Holiday Lets (FHL). This makes them eligible for tax benefits like mortgage interest relief and capital allowances. Standard buy to let properties do not receive these benefits.

Holiday let mortgages often require larger deposits, usually 25% to 35% of the property's value. Interest rates may also be higher due to the risks of short-term rentals.

Holiday let mortgage criteria

Lenders set strict criteria to ensure applicants can manage the mortgage. As well as rental income, many lenders require a minimum personal income, typically between £25,000 and £40,000.

Borrowers must show that rental income will cover their mortgage repayments. Lenders also prefer properties in areas more likely to attract consistent bookings. This is why they’re often found in popular tourist areas. Plus, the property must be in good condition and fully furnished.

There may be other criteria to consider. For example, lenders often limit how long you can stay in a holiday let property. Our mortgages allow up to 60 days of personal use per year. Some lenders may also have a maximum age limit for when the mortgage has to be repaid. We don’t have such a requirement, but this differs between lenders.

How lenders assess affordability

We calculate rental coverage by obtaining a letter from a holiday letting agent. This letter confirms the expected seasonal weekly income. The average of these figures is then multiplied by 30 weeks to estimate annual income. If the property has been let for at least two years, the average is multiplied by 35 weeks. Most lenders will use a similar approach.

For basic rate taxpayers, the income must usually cover at least 125% of mortgage payments. This rises to 145% for higher or additional rate taxpayers. This is based on the mortgage’s initial interest rate plus 2%, or a minimum of 5.5%, whichever is higher. For five-year fixed rate mortgages, rental coverage is calculated at 145% of the product’s interest rate.

Costs of a holiday let mortgage

Owning a holiday let involves several costs beyond mortgage repayments and the deposit. Buyers must also consider Stamp Duty Land Tax (SDLT), which includes an additional surcharge for second properties.

Holiday let insurance is essential. It covers loss of rental income, damage, and liability.

In addition, the property must remain fully equipped and well-maintained to attract guests. As a result, furnishing and maintenance costs are ongoing. Those using a holiday letting agency should also budget for commission fees.

Tax benefits of a holiday let

Holiday lets in the UK can qualify for tax benefits under the Furnished Holiday Let (FHL) rules. To be eligible, the property must be available for 210 days and let for at least 105 days per year. It should not be let for more than 31 days at a time for significant periods.

Meeting these conditions allows owners to claim mortgage interest relief. From April 2025, relief will be given as a 20% tax credit for higher and additional rate taxpayers. More details are available on the UK government website.

Choosing a lender

Not all lenders offer holiday let mortgages, so choosing the right one is important. Specialist lenders and building societies, such as Suffolk Building Society, often provide tailored products. Some mainstream banks offer holiday let mortgages, but their criteria may be different.

There are many factors to consider when selecting a lender. These include interest rates, loan to value (LTV) ratios and rental income requirements. Research carefully to find a lender that suits your needs.

Applying for a holiday let mortgage

The application process involves several steps. First, research and compare lenders to find the best deal. Assess your financial situation to ensure you meet income and affordability requirements. Your chosen lender will be able to assist you with this.

Then, prepare the necessary documents. These include proof of income, bank statements, projected rental income reports, and details of other owned properties. Choose a property that meets mortgage criteria before applying. Some borrowers work with a mortgage broker to simplify the process.

Once submitted, the lender evaluates the application and conducts a property valuation. If approved, the property transaction can start to go through the normal home-buying stages until completion. After completion, the owner can start to prepare the property for guests.

Is a holiday let mortgage right for you?

Investing in a holiday let can be financially and personally rewarding. However, it requires careful planning and ongoing management. Consider the benefits, responsibilities, and costs before proceeding.

A well-located holiday let can attract strong rental income, tax benefits, and potential property value appreciation. With the right mortgage and effective property management, you can enjoy a successful holiday rental.

Final thoughts

If you're considering a holiday let mortgage, speak to a specialist lender or mortgage broker. With demand for UK holiday rentals remaining high, now could be a great time to invest in a holiday property.

About Suffolk Building Society

Trusted since 1849, Suffolk Building Society provides a safe home for savers and safe homes for its communities. The Society offers a range of holiday let mortgages, details of which can be found on its websites.