HOLIDAY-LET MORTGAGES

Investing in holiday lets can be a lucrative opportunity, but these properties require specialist mortgage products. Unlike standard buy-to-let mortgages, not all lenders offer holiday let financing, and the eligibility criteria differ significantly.

How Lenders Assess Holiday Let Affordability

Unlike standard buy-to-let properties, where affordability is based on long-term rental income, lenders assess holiday lets using projected rental income across different seasons:

✔️ High-Demand Season – Peak months (e.g., summer holidays).
✔️ Medium-Demand Season – Shoulder months (e.g., spring and autumn).
✔️ Low-Demand Season – Off-peak months (e.g., winter).

Affordability Calculation Example

Lenders typically average out seasonal rental income to determine loan eligibility. A basic formula could look like this:

(HighSeasonIncome+MediumSeasonIncome+LowSeasonIncome)÷3(High Season Income + Medium Season Income + Low Season Income) ÷ 3(HighSeasonIncome+MediumSeasonIncome+LowSeasonIncome)÷3

Example Calculation:

• High Season: £2,500 per month

• Medium Season: £1,500 per month

• Low Season: £800 per month

(£2,500+£1,500+£800)÷3=£1,600(AverageMonthlyRentalIncome)(£2,500 + £1,500 + £800) ÷ 3 = £1,600 (Average Monthly Rental Income)(£2,500+£1,500+£800)÷3=£1,600(AverageMonthlyRentalIncome)

Lenders apply a stress test multiplier to ensure affordability under potential market fluctuations.

Key Financial Considerations for Holiday Lets

Holiday lets operate differently from traditional buy-to-lets, and investors should consider the following:

📌 Higher Turnover Costs – Frequent guest changeovers mean increased cleaning, laundry, and maintenance expenses.

📌 Furnished Property Requirement – Unlike standard rentals, holiday lets must be fully furnished, adding to initial setup costs.

📌 Owner-Paid Utilities & Expenses – The landlord typically covers utilities, council tax, Wi-Fi, and general upkeep.

📌 Seasonal Income Variation – Rental income fluctuates depending on the time of year, impacting cash flow and affordability assessments.

Tax Considerations for Holiday Lets

Holiday lets are taxed differently from standard buy-to-let properties. If they qualify as Furnished Holiday Lets (FHLs), investors may benefit from:

✅ Mortgage Interest Relief – Unlike standard buy-to-lets, holiday lets may qualify for full mortgage interest deductions.
✅ Capital Allowances – Ability to deduct furnishing and equipment costs.
✅ Business Rates Exemptions – Some holiday lets qualify for small business rates relief instead of council tax.

⚠️ Tax regulations are complex, and it is advisable to consult a tax specialist before making investment decisions.

Insurance Requirements for Holiday Lets

Standard landlord insurance is often not sufficient for holiday lets. Instead, investors need specialist holiday let insurance, covering:

✔️ Public Liability – Protection against guest accidents or injuries.
✔️ Damage to Furnishings & Property – Covers damage caused by short-term tenants.
✔️ Loss of Rental Income – Protection against cancellations or damage-related loss of rent.

💡 Ensure your policy includes "Loss of Income Cover" to protect against vacant periods due to repairs or unforeseen issues.

Personal Use Considerations

Some holiday let lenders allow landlords to use the property for personal holidays, while others strictly prohibit owner occupancy.

📌 If you plan to stay in the property, confirm lender restrictions before applying for a holiday let mortgage.

Leasehold & Usage Restrictions

Certain holiday let properties, particularly flats under leasehold, may have restrictions, such as:

🚫 No Short-Term Lets – Some leases explicitly prohibit holiday lets.
🗓 Rental Duration Limits – Some leases limit the number of weeks per year that the property can be rented.
⚠️ Commercial Use Restrictions – Some properties restrict business use, making mortgage approval more challenging.

💡 Always review the lease terms before purchasing a holiday let to ensure it aligns with your investment strategy.

Marketing & Management Costs

Unlike long-term rentals, holiday lets require active marketing to maintain high occupancy rates. Many landlords opt for holiday let management companies, which handle:

• Guest bookings & payments.

• Cleaning & maintenance coordination.

• Marketing on platforms like Airbnb, Booking.com, and Vrbo.

These services typically charge a commission (10–25% of rental income), which should be factored into your profitability calculations.

Lender-Specific Criteria for Holiday Lets

Each lender has unique criteria for holiday let mortgages, including:

🏡 Location Requirements – Some lenders only finance properties in recognised tourist areas.
💷 Minimum Rental Yield Expectation – Lenders may require a minimum rental return.
📊 Rental History Proof – Some lenders prefer properties with a track record of successful holiday lettings.

💡 Before making an offer on a holiday let, confirm that mortgage financing is available and that the property meets lender criteria.

Final Thoughts

Holiday lets present a unique investment opportunity but come with specialist mortgage requirements and additional operational costs.

Before investing, consider:

✅ Seasonal rental income variations.
✅ Higher maintenance & furnishing costs.
✅ Tax implications & business rates exemptions.
✅ Lender-specific restrictions on owner occupancy & location.
✅ Marketing & management expenses for maximising profitability.

💡 If you’re considering a holiday let mortgage, seeking professional tax and mortgage advice will help you maximise returns while ensuring compliance with lender requirements.

📌 For expert guidance, contact us today to explore your best holiday let mortgage options.