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Holiday let mortgages explained

Holiday lets have become increasingly popular in recent years, as their tax treatment can be more favourable than standard Buy to Let properties.

Furnished holiday lets can be treated as a business, which means that currently they can benefit from tax relief on mortgage interest, whilst with conventional Buy to Let properties, relief on mortgage interest has gradually been reduced over time so that it will eventually only be available at the basic rate of tax. However the Government has announced that from April 2025 the rules for Furnished Holiday lets will be brought into line with standard Buy to Let properties, removing the more favourable treatment they currently get.

Getting a mortgage on a holiday let home isn’t the same as getting a mortgage on a residential or conventional Buy to Let property. You may find it more challenging, or there may be fewer lenders willing to lend to you.

Lenders can be more cautious about offering mortgages on holiday homes that are rented out because there are no guarantees on how long the property will be let out for each year.

This means lenders usually require a bigger deposit, typically 25%. They’ll also want to see evidence that you’ll be able to cover mortgage payments during periods when your holiday home isn’t occupied.

Our experts here at L&C can talk you through all the available options, to help you decide whether a holiday let mortgage is right for you.

Holiday let mortgage process

As with any other type of mortgage, the first step should be to speak to a holiday let mortgage broker like L&C. We’ll be able to advise you on what you need to prepare for your mortgage application, as well as comparing holiday let mortgage providers from across the market in order to determine which lender is most likely to give you a good deal.

Then it’s a case of getting your documentation together and applying for your mortgage. We’ll guide you through the process from start to finish, and you can reach out to our team at any time if you have questions.

Holiday let mortgage eligibility criteria

There are some holiday let criteria that you’ll need to meet before your mortgage application is accepted. HMRC states that your property must be available to rent for at least 210 days per year, and it must be let out for at least 105 days - that’s equivalent to 15 weeks.

Rentals of your property must be short-term, with no single let for longer than 31 days allowed. If any stay is longer than 31 days, it won’t be counted towards the 105 days mentioned above that you need for your property to be classed as a holiday let.

Be wary of renting out your property to friends and family for free or at a reduced rate, as this also won’t be counted.

Most lenders will require a significant holiday let mortgage deposit, usually 25% of the property’s value - although this may be more or less depending on the lender.

It is also usually a requirement that you are 21 or older, and many lenders will also have minimum income requirements. You must also give a projection of how much rental income you expect to make from your holiday let, in order to get the best holiday let mortgage rates. It’s usually expected that you’ll make at least 125-145% of your monthly mortgage repayments in rental income.

It’s important to understand the potential tax implications of taking on a holiday let. You’ll be eligible to pay Stamp Duty when you purchase a holiday let property, and you may also have to pay income tax on your rental income. You’ll have to file a Self Assessment tax return every year declaring your rental income. However, you’re eligible to deduct certain costs like mortgage interest and letting agency fees from your rental income, and you may be able to claim Capital Gains Tax relief for traders when you sell the property.

Holiday let mortgage deals

For the best holiday let mortgage interest rates, you should save up as much as possible for your deposit – you’ll need at least 25% of the value of the property.

Think carefully about the location, as this can play a big factor in the rental value of your property. It’s also important to do your own research into the local holiday rental market. You can look at other holiday lets and speak to people already in the market to understand how much you can charge for your rental. You should also speak to local letting agents to understand the demand in the area. This is a crucial step, as it’ll help you to put together a projection for your rental income, which lenders will use to assess your mortgage affordability.

Holiday let mortgage repayment plan

As with any other type of mortgage, your repayment plan will depend on the type of mortgage you’ve taken out. If you’ve opted for a fixed-rate, your payments will be the same for the duration of your fixed rate term, which might be 2, 3, 5 or 10 years.

On the other hand, if you’ve gone for a variable rate mortgage, your payments could fluctuate month on month depending on interest rates. You’ll need to consider whether you’d prefer the security of fixed payments, which may be more expensive in the long run, or if you’re comfortable with the uncertainty of variable payments when your rental income may not be stable.

If you’ve chosen an interest-only holiday let mortgage, you’ll only pay the interest each month, with the full amount of the mortgage to be paid off at the end of the term.

Apply for a holiday let mortgage with L&C

Finding a mortgage for a holiday home that you plan to let out isn’t always straightforward, but as an expert holiday let mortgage broker, we can help. L&C will compare holiday let mortgages for you and help you find the best deal for your circumstances.

We’ll look at all the different holiday let mortgage providers and talk you through the options, helping you to access specialist mortgages which you might otherwise struggle to find. Our advice won’t cost you a penny either, so get in touch with us now to see how L&C can help.

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Apply for a holiday let mortgage with L&C

Finding a mortgage for a holiday home that you plan to let out isn’t always straightforward, but our mortgage experts can help secure the best deal for your circumstances.

They can talk you through all the different holiday let mortgage options, helping you access specialist mortgages which you might otherwise struggle to find. Our advice won’t cost you a penny either, so get in touch with us now to see how L&C could help you.

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Frequently asked questions

How do holiday let mortgages work?

With a holiday let mortgage, you’ll usually have to put down a substantial deposit and be able to demonstrate to the lender that you can cover your mortgage costs when the property isn’t rented out. You will need to do some research before applying for a holiday let mortgage, so you have a good idea of your projected rental yield.

How much will a holiday let mortgage cost?

Holiday let mortgage rates tend to be higher than rates on residential or standard Buy to Let mortgages because the lender is taking on a higher level of risk. The amount you’ll repay each month will depend on how much you’re borrowing, the interest rate and term you’ve chosen.

Are mortgages for holiday lets always repayment?

No, some lenders also offer mortgages for holiday lets on an interest-only basis, but you’ll need to have a plan in place for repaying the mortgage capital. L&C can help you to find the lenders most likely to offer your preferred type of mortgage, whether that's repayment or interest-only.

Can I convert my holiday let mortgage to residential?

You can only convert your holiday let mortgage to a residential mortgage if you’re planning to move into your holiday home and live there full-time. You should be aware that you may not get the same deal on your new mortgage as your existing one, and you may be subject to fees when switching.

How much deposit do I need for a holiday let mortgage?

As holiday let mortgages are risky for lenders, they generally ask for a higher deposit than on residential mortgages. You can expect to need a deposit of at least 25%, although some lenders may offer you a mortgage with a 15-20% deposit. We can help you to find the right holiday let mortgage for your circumstances.

Can you get interest-only holiday let mortgages?

Yes, some lenders offer interest-only holiday let mortgages. Just like with Buy to Let mortgages, these tend to be the most popular choice. It's important to remember that the lowest interest rate doesn't always mean that it's the best available deal. And as with any interest-only mortgage, you’ll need to have a plan in place to repay the amount you owe at the end of the mortgage term.

Are holiday let mortgages more expensive?

Interest rates on holiday let mortgages are typically more expensive than both Buy to Let and residential mortgages. This is because there's no guarantee that you'll make a year-round income from your holiday let, so the lender is taking on more risk. However, it's important to note that there’s the potential to save on income tax by deducting your mortgage interest from your profits.

Is it difficult to get a holiday let mortgage?

Affordability checks for holiday let mortgages can be stricter than for other types of mortgages, as lenders need to be sure that you're able to afford your repayments even if your holiday let is empty for a length of time. That's why you'll usually be required to have a larger deposit. Plus, your lender will want to know how much rental income you expect to make. If you meet all the requirements, though, you can expect to have several options available to you.