How do holiday-let mortgages work

The main difference boils down to the varying lending rates available on each. These are based on income risk. A Buy-to-Let home comes with an assured and contracted tenancy agreement, so the risk of losing income from letting it out is low. 

In a Holiday-Let property, guests tend to stay on a short term basis, usually for no more than a couple of weeks at a time. The income from the property will also rely heavily on the owner’s efforts to secure these bookings, which tend to come in seasonal waves. 

The income a Holiday-Let owner will receive year-round is, therefore, less consistent than with a Buy-to-Let property. 

As this presents a little more risk for lenders, the interest rates on Holiday-Let mortgages are usually slightly higher.

Like all mortgages, how much you’re able to borrow will depend on how much you can put towards a deposit. The higher your deposit, the lower the interest rates available to you.

Holiday-let mortgage lenders will also look at the property’s potential income and, ideally, this will cover at least 125% of the mortgage interest payments. Lenders may occasionally speak to local holiday letting agents for their opinion as well. Plus, if you already have mortgage repayments on your own home, these will need to be taken into account. 

Top tip: You can use our online mortgage cost calculator to work out your options.

Holiday-let mortgages do tend to be more expensive, in the sense that mortgage charges such as interest rates will be slightly higher because of the short-term nature of the lettings you can secure. They also tend to require a higher deposit than standard mortgages (typically 25-30%) so it’s worth bearing this in mind if you’re considering a holiday-let. As always, it’s important to explore different holiday-let mortgage lenders and researching different mortgage products to find one that’s right for you.

Holiday-let mortgages aren’t as readily available as regular residential mortgages. This is simply because there isn’t the same demand. However, the market grew with the boom in popularity for staycations after the Covid-19 pandemic, and as a result there are a lot more products available now. In terms of applying, you’re still subject to the same affordability checks and any additional borrowing, including other mortgages in your name, will be taken into account.

A place abroad in the glorious sunshine is a clear draw for jet setters, which can make the task of letting it out that bit easier. However, do your research before you start property hunting. Many Holiday-Let mortgage providers, like us, don’t offer mortgage products for accommodation outside the UK. So while the UK climate is unpredictable and the likelihood of good weather is much higher abroad, it can prove trickier to mortgage an international holiday property.

Aside from the obvious benefits of having an idyllic property in a picturesque location at your fingertips, Holiday-Let homes can come up trumps when it comes to making money.

For example, they usually charge a considerably higher amount than Buy-to-Let homes per week.

There are also special tax rules for rental income from properties that qualify as furnished holiday lettings (FHLs). These are considered to be businesses within the UK tax system so you can claim Capital Gains Tax reliefs, you’re entitled to capital allowances for items such as fixtures and furniture and the profits count as earnings for pension purposes.

More information can be found on the HMRC website.