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Holiday Let Mortgage Guide

Holiday Let Mortgage Guide

Last year, in a pre-COVID world, millennials (aged 25-34) were mainly responsible for driving the increase in popularity of staycations, as this age group were most likely to choose a staycation as their main holiday.

Now, with working-at-home making it all the more possible to take a UK break, lots of people are considering how they can capitalise on the staycation boom.

If you’re looking for an investment opportunity and a revenue stream, and are considering a holiday let as your way of achieving this, you may need a holiday let mortgage.

It can be a rewarding experience to own your very own holiday let, whether you make some extra money or use it as a base to create all-important family memories. The purchase of a second home will often require a specific type of holiday let mortgage.

What is a Holiday Let Mortgage?

A holiday let is essentially an investment property, and similar to a straightforward buy-to-let mortgage, a holiday let mortgage enables you to own a property for the purpose of renting it throughout the year, primarily in a short-term.

If you are looking to purchase a holiday property as a business, you will need a dedicated holiday let mortgage. Though you can use the property yourself on occasions, its primary function should not be as a holiday home for yourself/your family.

How do Holiday Let Mortgages Work?

Holiday let mortgages are often categorised under the title of second home mortgage. Under this title, you will also find buy-to-let mortgages and holiday home mortgages. They are defined below:

  • Holiday Let Mortgages are intended for second home owners who intend to rent out their second property for short periods of time over multiple agreements e.g. a 2 week rental holiday multiple times
  • Buy to Holiday Let Mortgages are intended for second home owners who are renting their property out for extended periods of time to tenants e.g. 6 -12 month period .
  • Holiday Home Mortgages are intended for those that want to use the property strictly for personal use only (in this case you may just be able to apply for a residential mortgage).

It is important to note that the criteria to qualify for a holiday let mortgage varies depending on your situation. If you are wanting to use your second home as a holiday let, you must have a holiday let mortgage. Holiday letting with a buy-to-let mortgage can be classified as fraudulent. If you currently have a buy-to-let mortgage you may have to remortgage.  

Can I get a Second Mortgage for a Holiday Let?

If you’re starting to think about buying a new home, keeping your current home under a Holiday Let mortgage is certainly a possibility.

It is important to remember that you cannot reside in this residence on a long-term basis under a holiday let mortgage, however, retaining the property and renting it for short term lets can be a great way to generate an income and grow your property portfolio.

Can I get a Holiday Let Mortgage as a Contractor?

Yes, you can! If property investment is something you’re considering as a contractor or as a self-employed professional, it’s recommended that you speak to an expert.

Contractors can often be charged higher rates or not given fair opportunities for borrowing because of the way their income works.

A specialist mortgage broker like CMME has an in-depth understanding of the way you work and can fight your corner to make sure you get the best deal.

What are the Requirements for a Holiday Let Mortgage?

As with many mortgage types, the requirements for a holiday let mortgage usually vary from provider to provider. Lenders will often ask you to raise a deposit of at least 25%, possibly reaching closer to the 40% mark. However, this could mean lower rates of interest.

On top of this, mortgage providers will often expect you to have a certain level of income from your salary or elsewhere.

Your whole case will be viewed as whether buying a holiday let is affordable. In other words, is your credit rating at a good level and can you manage your finances correctly?

Use our holiday let mortgage repayment calculator to work out how much your mortgage is likely to cost, and how much money you will have to repay each month.

Who does Holiday Let Mortgages?

Whilst buy-to-let mortgages are very accessible, there are currently a limited number of lenders that offer specific holiday let mortgages. If a holiday let is something you’re considering, you can go directly to lenders; however, it can often be more beneficial to go through a specialist broker, particularly if you operate as a small business or as a self-employed professional.

Mortgage and protection specialists CMME can often assist with getting the best deal for your circumstances. With specialist underwriting arrangements with lenders, award-w

inning customer service and experts in their field, they’ll be able to tell you immediately if you can get a holiday let mortgage, what costs could be involved and what is the best deal in the whole market for you.

Can I get a Holiday Let Mortgage as a First-time Landlord?

The simple answer is yes, you can! As a first-time landlord, it can be useful to get some advice and insight when looking into your first mortgage options, but you are not excluded from holiday let mortgages opportunities.

Interestingly, a recent survey by FJP Investment found that 43% of 18-34 year-olds surveyed plan to invest before next April meaning that this group stand to benefit particularly from the Stamp Duty holiday.

This means that now could be an excellent opportunity for firs-time landlords and millennials to explore buy-to-holiday let as an option for getting onto the investment property ladder.

Tax Benefits of Holiday Let Mortgages

If you succeed to get a mortgage for your holiday cottage, you may be entitled to a certain level of tax relief. If your property is classified as a Furnished Holiday Let (FHL), then it can be regarded as a business venture.

This means you could be eligible for receiving tax relief on your mortgage interest payments. Find out more by reading our furnished holiday let tax guide.

Top 10 Tips to Getting a Holiday Let Mortgage

1. Get your paperwork in order

You will typically need three months’ personal and business bank statements, an in-date passport and/or a driving licence, proof of your earnings (contracts or trading accounts if you don’t work via contracts) and proof of deposit.

CMME asked their experts about deposits and documents: here’s what they had to say.

2. Organise your deposit

Either save or get a gift from direct family. Generally speaking, the bigger the deposit, the lower the interest rate.

Check out CMME’s blog on how to get better at saving.

3. Check your credit health

Look at your profile/report to ensure you have a healthy score. Close credit and store cards that you do not use to boost your score, as mortgage lenders treat unused but open credit as potential debt.

Do not undertake credit searches before you look at mortgages. Pay off as much debt as possible.

Use a service like Credit Karma to keep an eye on your credit health.

4. Consider the market

Know if house prices are going up or down, and investigate all costs associated with the property including; council tax, insurance, and utility bills. Consider local amenities for holiday goers and location popularity.

5. Decide on a location

Make a decision on the location for your holiday let, bear in mind that you may need to manage the property yourself or hire a property manager depending on proximity to your own home.

6. Find your perfect investment property 

This can be both exciting and daunting, knowing how much you can borrow can help narrow your search.

7. Work out the realistic costs

Be realistic about the running costs of the property and travelling to and from. Account for any maintenance or management you may have to pay for and include this in your budget.

8. Speak to an expert mortgage broker

Running your own holiday let takes an independent spirit. CMME are proudly independent, meaning they’re free to find the right lending partner for you, to negotiate hard on your behalf and cut a deal that works to find the holiday mortgage that you deserve.

9. Searches and building surveys are carried out on the property

There are various checks such as area searches and land surveys are carried out to protect you and the lender.

10. Contact a specialist letting agent

Once you have narrowed your search down, you can contact a professional letting agency, like ourselves, for guidance on average booking levels and rental income for your chosen area, as well as recommended amenities.

Once you have specific properties, professional letting agencies can offer more assistance and can discuss your requirements in more detail. We can also support with your application when you are ready

Check out our advice on how to buy a holiday home to let for even more information on how to go about beginning your holiday let investment journey.

This post was brought to you by CMME Mortgages.

Whether you want to talk specifics or are just after some general advice, CMME can help. Speak to them today on 01489 223 750 for a completely free, no obligation mortgage consultation. Or click here to arrange a call back.

Let your property with Sykes and earn up to £125,000 per year*

  • Join over 15,000 holiday properties already working with Sykes Cottages
  • We welcome over 26 million web visitors a year
  • Many of our owners achieve more than 45 bookings a year
  • We specialise in turning your holiday property into a profitable year-round income for you

*Based on a 7 bedroom property in the Lake District with bookings between October 2017 to September 2018.

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