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How do holiday let mortgages work

Have you been dreaming of owning your own holiday home in the countryside? Or maybe even a beach house by the side of the sea? The good news is that there is tons of information out there on how to get started.

If you have already dipped your toes into information and guidance surrounding holiday letting, then you have most probably come across a specific type of mortgage – The Holiday Let Mortgage.

Holiday let mortgages are becoming more and more popular as citizens across the UK are looking to acquire a holiday let of their own.

What is a holiday let mortgage?

Property Mortgage Form

A holiday let mortgage is a specially designed mortgage to accommodate those looking to buy a property with the intention of letting it out on a regular short term basis. This mortgage type can only be used for short-term renting only and cannot be used for longer stays

Unlike a typical property mortgage, a holiday let mortgage cannot be acquired through a bank in the same way you would for your main home. This unique mortgage can best be obtained through a building society.

If you’re struggling to get started, talk to a specialist mortgage broker who will be able to help you get your foot in the door.


How does a holiday let mortgage work?

Financial adviser

Unlike your typical mortgage, holiday let mortgages are dependent on a few more factors that could make or break your holiday letting dreams.

As is the case with normal mortgages, your income will be assessed by the mortgage provider to ensure that you can keep up with the mortgage repayments. However, your personal income isn’t the only factor that is considered.

When looking at your finances, the mortgage provider will take into account how much money they believe that the property will make from tourism. Once they have an idea of how much money you will make on your property whilst it is occupied, they will also work out if you will still be able to financial afford to run the property when there is less demand.


Differences between traditional letting and holiday letting mortgages

short term vs long term letting

Although on the surface you would think that traditional long term renting and holiday letting are the same, however, you’d be surprised to know that there are several differences with different mortgage implications.

Holiday letting can demand a much greater amount of money over shorter periods of time, meaning that the potential income from holiday could be greater. As there is often higher demand for holiday lets, you can expect certain months to pull in an attractive amount of money.

Letting out to multiple different customers over shorter periods of time can be a slight downside in that some customers may not treat your property with respect. However, this can be a major positive to short term letting as the customer will leave sooner and will not have the same legal protections as a long term customer who will be entitled to around 2-6 months notice period before leaving your property.

On top of some great financial income when letting out a holiday home, you will also be able to benefit from some great tax reliefs including Capital Gains Tax relief.


What is the criteria for a holiday let mortgage?

Holiday let mortgage criteria

Most mortgage providers will all require the same factors when considering offering you a holiday let mortgage loan:

  • An income of at least £20,000 per annum on top of any income made from the holiday let itself.
  • A deposit of at least 20% of the property’s value. Mortgage providers will only loan up to 80% of the value of the property.
  • An estimated rental income of at least 130% of the interest payable on the mortgage.
  • Many mortgage providers will only provide a loan if you already have an existing property.

Holiday let mortgages are unique in several different ways and there can be more risks attached to them. This means that you may be limited on places to go for your mortgage. A mortgage broker will help open many doors for you in terms of mortgage providers.


The tax benefits for holiday let mortgages

Tax relief

Did you know that you can receive tax reliefs when you take out a holiday let mortgage?

If your holiday home is fully furnished and ready to go, you will be entitled to claim on Capital Gains Tax. On top of this, you will be entitled to plant and machinery capital allowance which means you won’t have to fork out for furniture or equipment with your own income.

Even with all of this bonus to owning a holiday let, there is still more!

The income you make on your holiday home(s) will be treated as your salary, meaning that you will benefit from greater pension packages when you retire.

If you eventually feel as though it is time to move on from your holiday home, you will also be relieved of taxes here too! Through business asset rollover relief (BARR) and business asset disposal relief (BADR), you will be able to avoid paying hefty tax charges.

Read more on capital gains tax relief for holiday lets and our guide to holiday let business rates and council tax.


What will a mortgage provider need from me?

Mortgage Calculator

In a similar way to a typical mortgage, the mortgage provider will want to get as much information out of you as possible.

However, because of the financial implications involved in letting out a holiday home, the mortgage provider will require some more unique information from you. This will include:

  • All areas of your income
  • The size of your deposit
  • Letting intentions
  • Location of the property
  • How much you want to borrow

If you are still unsure about any of the information that you are required to provide to your mortgage provider, you can always ask a mortgage broker or specialist for expert advice.

Alternatively, you can find out more on holiday let mortgage criteria in our blog on what information you need when applying for a holiday let mortgage.


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.

holiday let owner pack

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