Holiday Let Mortgage Guide

Mortgages for Holiday Let Properties

Holiday lets are different from conventional Buy to Let properties.

Instead of renting a property to the same tenant or household for a longer period, a holiday let is generally used for short-term accommodation, with guests staying for shorter periods throughout the year.

This creates a different type of property investment and can also change how mortgage lenders assess the application.

A lender may consider the property's location, expected holiday-let income, occupancy, seasonality, property type, applicant experience, deposit and ownership structure.

The property also needs to be suitable for the lender's holiday-let criteria.

This guide explains some of the main mortgage considerations when purchasing or refinancing a holiday-let property.

What Is a Holiday Let Mortgage?

A holiday let mortgage is generally designed for a residential property that will be offered to paying guests on a short-term basis as holiday accommodation.

This differs from a conventional Buy to Let mortgage, where the property is generally rented to residential tenants under longer-term tenancy arrangements.

Because the way the property generates income is different, a standard Buy to Let mortgage may not necessarily be appropriate for a holiday let.

The lender needs to understand how the property will actually be used.

Holiday Let vs Standard Buy to Let

Both involve purchasing property that you do not normally occupy as your main residence, but the letting arrangements can be very different.

A conventional Buy to Let might generate a relatively consistent monthly rent from one household.

A holiday let may generate income from many separate bookings throughout the year.

Income could be significantly stronger during popular holiday periods and weaker at other times.

This seasonality is one of the important differences a lender may need to consider.

Is a Holiday Let the Same as Airbnb?

Not necessarily.

Airbnb is a platform through which properties and rooms can be advertised for short-term accommodation.

A holiday let describes how the property itself is being used.

Properties may be marketed through different booking platforms, specialist holiday-let companies, letting agents or directly by the owner.

From a mortgage perspective, the important consideration is usually the actual intended use of the property rather than simply which website is used to advertise it.

Can I Use a Normal Residential Mortgage for a Holiday Let?

You should not assume that you can.

A standard residential mortgage is generally intended for a property occupied by the borrower as their home.

If the intention is to operate the property as commercial short-term accommodation, the mortgage needs to permit that use.

Using a property in a way that is inconsistent with the mortgage conditions could create problems with the lender.

Your intended use should therefore be disclosed accurately when arranging finance.

Can I Use a Standard Buy to Let Mortgage?

Again, you should not assume that a conventional Buy to Let mortgage will permit holiday letting.

Standard Buy to Let mortgages can be designed around properties occupied by residential tenants under conventional tenancy arrangements.

Short-term holiday accommodation creates a different occupancy pattern.

Some lenders specifically offer or accept holiday-let lending, while others may not permit it.

The mortgage should therefore be selected based on the property's actual intended use.

How Much Deposit Do I Need for a Holiday Let?

Holiday-let mortgages generally require a meaningful deposit.

There is no single deposit requirement across the market.

The amount required can depend on:

• lender;

• property value;

• mortgage amount;

• expected income;

• applicant circumstances;

• property type;

• location;

• ownership structure; and

• mortgage product.

The relationship between the mortgage and property value is known as the loan-to-value, or LTV.

For example, if a holiday property were valued at £300,000 and the mortgage were £225,000, the mortgage would represent 75% of the property's value.

That would be a 75% LTV mortgage.

A larger deposit reduces the LTV and may potentially increase the range of available mortgage options, although this is not guaranteed.

How Do Lenders Assess Holiday Let Affordability?

Holiday-let affordability can differ from both residential and conventional Buy to Let lending.

The lender may want to understand the income the property could reasonably generate as short-term holiday accommodation.

Because holiday-let income can vary throughout the year, the assessment may need to consider expected annual income rather than relying solely on one monthly rental figure.

Different lenders can have different methods of assessing this.

Some may also consider the applicant's personal income and wider financial circumstances.

How Is Expected Holiday Let Income Established?

If the property is already operating as a holiday let, there may be an existing booking and income history.

For a new holiday let, there may be no historic income available.

Depending on the lender and circumstances, information about expected letting income may be obtained from appropriate property or letting professionals as part of the assessment.

The lender's valuer may also consider the property's suitability and expected rental position.

An estimate from the seller or an online booking platform should not automatically be assumed to be the figure a mortgage lender will accept.

Existing Holiday Let vs New Holiday Let

The information available can be different depending on whether you are purchasing an established holiday-let business or a property that will become a holiday let for the first time.

An established property may have information such as:

• previous bookings;

• historic income;

• occupancy;

• seasonal patterns; and

• management costs.

A new holiday let may rely more heavily on projected performance.

Previous performance can be useful information, but it does not guarantee future bookings or income.

Seasonality Matters

Holiday-let income may not arrive evenly throughout the year.

A coastal property, for example, could potentially experience strong demand during the summer but significantly lower occupancy during other periods.

Properties in other locations may have different seasonal patterns.

This means landlords should consider annual cash flow rather than assuming every month will produce the same level of income.

Mortgage payments and many property expenses continue during quieter periods.

Don't Base the Investment on Maximum Nightly Rates

It can be tempting to look at the highest nightly price achieved during peak season and use that to estimate annual income.

That can produce an unrealistic picture.

A more useful assessment considers:

• realistic nightly rates;

• occupancy;

• seasonal variation;

• booking platform fees;

• management costs;

• cleaning;

• utilities;

• maintenance;

• insurance; and

• periods when the property is unavailable.

Headline booking prices are not the same as net investment income.

Occupancy Is Just as Important as Price

A property advertised at a high nightly rate does not generate income when nobody books it.

For example, a property achieving a lower nightly rate with consistently strong occupancy could potentially generate more annual revenue than one charging substantially more but remaining empty for long periods.

This is why both pricing and realistic occupancy assumptions matter when considering a holiday-let investment.

What Costs Should I Consider?

Holiday lets can have different running costs from conventional rental properties.

Depending on the property and how it is managed, expenses may include:

• mortgage payments;

• utilities;

• broadband;

• cleaning;

• laundry;

• booking platform fees;

• management fees;

• insurance;

• repairs;

• maintenance;

• furniture;

• replacement appliances;

• service charges where applicable;

• gardening;

• property inspections;

• safety requirements;

• accounting costs; and

• taxation.

There may also be costs associated with preparing and maintaining the property to the standard expected by holiday guests.

The gross booking income therefore should not be confused with profit.

Self-Management vs Using a Holiday Let Agent

Some owners manage bookings themselves.

Others use a specialist holiday-let management company.

Self-management can reduce certain management costs but may require considerably more time.

Tasks can include:

• managing bookings;

• communicating with guests;

• arranging check-in and check-out;

• organising cleaning;

• responding to problems;

• maintaining online listings;

• managing reviews; and

• coordinating repairs.

A management company may take responsibility for some or all of these activities but will normally charge for doing so.

These costs should be considered when assessing the investment.

Does Location Matter?

Location can be particularly important for holiday lets.

Demand may be influenced by factors such as:

• tourism;

• countryside;

• beaches;

• historic attractions;

• business travel;

• wedding venues;

• universities;

• festivals;

• transport links; and

• local events.

However, popular locations can also have higher purchase prices and greater competition from other holiday accommodation.

Mortgage lenders can also have their own property and location criteria.

A property that appears attractive to holidaymakers is not automatically acceptable to every mortgage lender.

Can I Buy a Holiday Let Through a Limited Company?

Potentially, subject to lender criteria.

Some property investors consider holding holiday-let properties through limited companies.

The lender may assess:

• the company;

• directors;

• shareholders;

• personal credit history;

• applicant experience;

• deposit;

• property;

• expected income; and

• wider property portfolio.

Personal guarantees may also be required.

Whether purchasing through a company is appropriate is a separate question from whether a mortgage is available.

Tax, legal and accounting implications should be discussed with appropriately qualified professionals.

Can a New Limited Company Buy a Holiday Let?

Potentially.

Some lenders may consider newly incorporated property companies, while others may have additional requirements.

The absence of a long company trading history does not necessarily prevent an application.

The lender may instead place greater emphasis on the individuals behind the company, the property and the proposed transaction.

Criteria vary between lenders.

Can a First-Time Landlord Buy a Holiday Let?

Potentially, although lender choice can depend on circumstances.

Some lenders may be comfortable with applicants who have no previous landlord experience.

Others may prefer applicants with existing property or letting experience.

The complexity of the property and proposed business model can also influence the lender's approach.

A first-time landlord should therefore establish the potential mortgage position before committing to a property.

What If I Already Own Other Rental Properties?

If you already own rental properties, the lender may ask for information about your wider portfolio.

This can include:

• property values;

• outstanding mortgages;

• monthly rental income;

• mortgage payments;

• ownership structures; and

• other financial commitments.

Portfolio underwriting requirements differ between lenders.

The new holiday let may therefore be considered alongside your existing property investments.

Can I Stay in My Holiday Let Myself?

This is an important question to establish before selecting a mortgage.

Some owners want the flexibility to use the property personally for part of the year while letting it to paying guests at other times.

Whether this is permitted depends on the lender and mortgage conditions.

If personal use is important to you, it should be discussed at the beginning of the mortgage process rather than assumed to be acceptable.

What About Family and Friends Using the Property?

Again, lender conditions can matter.

A holiday-let mortgage is arranged based on a particular intended use.

If you expect yourself, family members or friends to use the property, this should be discussed when considering potential lenders.

Do not assume all lenders have identical rules around personal occupation.

Flats and Holiday Let Mortgages

A flat can potentially be suitable for holiday letting, but leasehold properties introduce another important consideration.

The lease may restrict or prohibit short-term letting.

Even if a mortgage lender is comfortable with holiday letting, the lease still needs to permit the proposed use.

Your solicitor should investigate the lease carefully.

Potential issues can include:

• restrictions on short-term occupation;

• subletting restrictions;

• service charges;

• ground rent;

• building management rules;

• insurance arrangements; and

• remaining lease length.

The mortgage and legal position both need to work.

New-Build Properties and Holiday Lets

Some investors may consider new-build properties for holiday letting.

However, lenders can have specific criteria for new builds, and the property's lease or development rules may restrict short-term accommodation.

If purchasing within a development, it is important to establish whether holiday letting is permitted before relying on projected rental income.

Unusual Properties

Holiday accommodation can include unusual properties such as converted barns, cottages and other non-standard buildings.

These can be attractive to holidaymakers but may require more specialist mortgage consideration.

Lenders can have restrictions relating to:

• construction type;

• location;

• access;

• utilities;

• property condition;

• acreage;

• outbuildings; and

• unusual property features.

The property itself therefore needs to be assessed alongside the applicant's financial circumstances.

Holiday Parks and Lodges

A holiday lodge or unit located on a holiday park should not automatically be assumed to qualify for a conventional holiday-let mortgage.

Factors such as property construction, land ownership, occupancy restrictions and whether the property is considered suitable mortgage security can make these transactions very different.

Specialist finance may be required, and some properties may not be suitable security for conventional mortgage lending at all.

The exact property should be investigated before assuming mortgage finance will be available.

Planning and Local Restrictions

The ability to operate a property as short-term accommodation can involve considerations beyond the mortgage.

Depending on the property and location, there may be:

• planning requirements;

• lease restrictions;

• local authority requirements;

• licensing schemes;

• occupancy conditions; or

• other regulatory considerations.

These requirements can change and can differ between locations.

The mortgage lender's willingness to lend does not confirm that the proposed use complies with every applicable legal or regulatory requirement.

Appropriate legal and local authority checks should therefore be carried out.

Holiday Let Insurance

A conventional residential home insurance policy may not be appropriate for a property regularly occupied by paying guests.

The insurance should reflect the way the property is actually being used.

Mortgage lenders may also have requirements concerning buildings insurance.

Depending on the property and operation, additional forms of insurance may also be appropriate.

The required cover should be discussed with an appropriate insurance professional.

Interest-Only or Repayment?

Holiday-let mortgages may potentially be available on an interest-only or capital-and-interest repayment basis, depending on the lender and product.

With interest-only, the monthly contractual mortgage payment generally covers interest rather than reducing the original capital balance.

The original mortgage capital therefore remains outstanding and must eventually be repaid.

With a repayment mortgage, monthly payments include both interest and capital, meaning the balance should reduce over the mortgage term if payments are maintained.

The appropriate approach depends on the available mortgage options, cash flow and longer-term investment strategy.

Maintaining a Financial Reserve

Holiday-let income can fluctuate.

Unexpected costs can also arise.

For example, you may experience:

• quieter booking periods;

• cancellations;

• emergency repairs;

• replacement furniture;

• appliance failures;

• property damage; or

• periods when the property cannot be occupied.

Mortgage payments and other expenses continue during these periods.

Maintaining an appropriate financial reserve can therefore be an important part of holiday-let planning.

Remortgaging a Holiday Let

An existing holiday let may potentially be remortgaged, subject to lender criteria.

Reasons for refinancing might include:

• an existing mortgage deal ending;

• changing lender;

• reviewing mortgage costs;

• raising capital;

• restructuring borrowing; or

• releasing equity for another property purchase.

The lender may reassess the property's value, expected income and applicant circumstances.

Historic holiday-let income may also be relevant depending on the lender and application.

Releasing Equity From a Holiday Let

If the property has increased in value or the existing mortgage has reduced, there may be equity available.

Subject to lender criteria, additional borrowing might potentially be considered.

However, the amount available can depend on:

• property value;

• existing mortgage balance;

• maximum LTV;

• expected holiday-let income;

• applicant circumstances;

• reason for additional borrowing; and

• lender criteria.

Releasing equity increases the amount owed against the property and should therefore be considered carefully.

The Holiday Let Mortgage Process

Although every application is different, a typical process may involve the following stages.

1. Establish Your Plans

Consider the property you want to purchase, intended use, deposit, ownership structure and how the property will be managed.

2. Review Your Circumstances

Income, credit history, existing mortgages, landlord experience and wider property portfolio can be considered.

3. Consider Expected Holiday Let Income

Assess realistic booking income and seasonality rather than relying solely on peak rates.

4. Research Suitable Lenders

Potential lenders can be assessed against the applicant, property and intended holiday-let use.

5. Submit the Mortgage Application

The mortgage application and supporting documentation are provided to the lender.

6. Property Valuation

The lender arranges an appropriate valuation of the property.

7. Underwriting

The lender assesses the applicants, property, expected income, deposit and supporting documentation.

8. Mortgage Offer

If the lender is satisfied, a formal mortgage offer may be issued.

9. Legal Work

Your solicitor investigates the property, title and, where applicable, lease restrictions.

10. Completion

Once the mortgage and legal requirements are satisfied, the transaction can proceed to completion.

Holiday Let Property Checklist

Before purchasing a holiday let, consider:

• purchase price;

• available deposit;

• mortgage amount required;

• expected annual income;

• realistic occupancy;

• seasonal demand;

• nightly rates;

• management costs;

• cleaning costs;

• utilities;

• insurance;

• repairs and maintenance;

• local competition;

• property condition;

• ownership structure;

• personal-use requirements;

• lease restrictions where applicable;

• planning and local requirements;

• financial reserves; and

• longer-term investment plans.

The mortgage is only one part of deciding whether a holiday-let investment works for you.

Speak to Cambs Ely Mortgages About Holiday Let Mortgages

Whether you're considering your first holiday let, adding another property to an existing portfolio or reviewing the mortgage on an established holiday-let property, we can discuss your circumstances and help you understand the mortgage options available.

Cambs Ely Mortgages provides Buy to Let and specialist property finance advice to landlords and property investors in Ely, Cambridge, Cambridgeshire and across England, with remote appointments available.

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Important Information

The information contained in this guide is intended for general educational purposes and does not constitute personalised mortgage, investment, financial, legal, planning, accounting or tax advice.

Holiday-let mortgage availability, affordability calculations, loan-to-value limits, property requirements, personal-use rules and lender criteria depend on individual circumstances, the property and the relevant lender and may change.

Planning, licensing, lease and other regulatory requirements can vary according to the property and location. Appropriate checks should be made with the relevant authorities and professional advisers.

Property investment involves risk. Booking income, occupancy and property values are not guaranteed, and you remain responsible for mortgage payments during periods when the property is not generating the expected income.

Tax treatment depends on individual circumstances and may change. Appropriate professional tax and accounting advice should be obtained where required.

Your property may be repossessed if you do not keep up repayments on your mortgage.

The Financial Conduct Authority does not regulate some forms of Buy to Let mortgage.