In recent years, the UK holiday rental market has seen a significant boom, driven by the increasing trend of staycations. Whether it’s a charming cottage in Cornwall or a seaside retreat in the Lake District, owning a holiday let can be a highly lucrative investment.Â
But to make the most of it, securing the right mortgage is key. Here at Mortgage Knight, we provide expert advice and assistance, ensuring you get the best possible mortgage for your holiday let property.
This guide will walk you through everything you need to know about holiday let mortgages in 2025, from the basic requirements to the best deals and tax benefits available.
What is a Holiday Let Mortgage?
A holiday let mortgage is designed specifically for properties that will be rented out on a short-term basis to holidaymakers. Unlike a standard buy-to-let mortgage, which caters to long-term tenants, holiday let mortgages are for properties rented out for days or weeks at a time, often during specific seasons.
With the flexibility and higher earning potential of holiday lets come more stringent lending criteria. Lenders take into account not just your personal income but also the fluctuating nature of holiday rental income.Â
Because this income can vary depending on the season, it’s essential to show a solid plan for maintaining steady returns throughout the year.
Holiday Let Mortgage vs. Buy-to-Let Mortgage
Although both mortgage types involve renting out a property, there are some critical differences:
Rental Period: Buy-to-let properties are typically rented out on longer leases, usually with an assured shorthold tenancy (AST) agreement. A holiday let, on the other hand, is rented on a short-term basis, often for less than 31 days at a time.
Income Volatility: While buy-to-let properties usually provide a consistent rental income, holiday lets can be highly seasonal. Lenders for holiday let mortgages often require a projection of rental income across high, mid, and low seasons, as well as a backup plan for covering costs during quieter months.
Tax Benefits: One of the key advantages of owning a holiday let is the tax benefits. If your property qualifies as a Furnished Holiday Let (FHL), you can benefit from special allowances, including offsetting mortgage interest and claiming capital allowances for furnishings and equipment.
Eligibility Criteria for a Holiday Let Mortgage
Given the unique nature of holiday lets, mortgage lenders apply specific eligibility criteria to assess the risk involved. Here’s what you’ll need to qualify:
- Deposit: Most lenders require a deposit of at least 25% of the property’s value. Some may request up to 40%, depending on the lender and the specifics of the property.
- Income: In addition to rental projections, many lenders ask for a minimum personal income (typically between £10,000 and £40,000). This ensures that you can cover the mortgage repayments even during periods of low occupancy.
- Property Type: Lenders favour traditional residential properties in popular holiday locations. However, some may have restrictions on non-standard properties, such as thatched cottages or buildings of unusual construction.
- Usage Restrictions: While you can use your holiday let for personal holidays, lenders often cap personal use to a certain number of days per year, ensuring the property remains primarily a rental.
- Rental Income Projections: Lenders often require you to work with an approved holiday letting agency to ensure your projected rental income is realistic. Most will expect your rental income to cover at least 125-145% of the monthly mortgage payment.
Holiday Let Mortgage Interest Rates & Lenders
Securing the best interest rate for your holiday let mortgage is essential to maximise your return on investment. As with all mortgages, interest rates for holiday lets can vary significantly based on factors such as your deposit size, the loan-to-value (LTV) ratio, and your financial circumstances.Â
However, there are a few additional nuances to keep in mind when it comes to holiday let mortgages:
Interest Rates: Holiday let mortgage rates are often slightly higher than standard residential or buy-to-let mortgages. This is because lenders perceive them as riskier due to the fluctuating rental income from seasonal lets. However, with expert advice from a broker like Mortgage Knight, you can still secure competitive rates.
Variable vs Fixed Rates: Some lenders offer variable-rate mortgages that can fluctuate over time, while others provide fixed-rate mortgages that lock in a rate for a specified period (e.g., two or five years). Fixed rates offer stability, which can be particularly useful for first-time holiday let investors.
Loan-to-Value (LTV): Most lenders cap LTV at 75%, meaning you’ll need to provide a 25% deposit. Some lenders might offer slightly higher LTV ratios, but this can result in higher interest rates. Working with a mortgage broker is vital to finding the best LTV arrangement for your needs.
Examples of Lenders Offering Holiday Let Mortgages
Several UK lenders specialise in holiday let mortgages, though the market is smaller than for standard buy-to-let products. Not all high street banks offer this type of mortgage, but there are notable lenders who do:
- Cumberland Building Society: Offers rates around 5.54% with a 75% LTV.
- Suffolk Building Society: Provides a similar interest rate at 80% LTV for some properties.
- Leeds Building Society: Known for offering a 60% LTV with a five-year fixed rate, but no product fee.
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These lenders specialise in holiday let mortgages, and their rates may change periodically, so it’s crucial to work with a broker who can help you navigate the current market.
Tax Benefits of Owning a Holiday Let Property
One of the key advantages of owning a holiday let is the ability to benefit from various tax reliefs, provided your property meets HMRC’s Furnished Holiday Let (FHL) criteria. Here’s a breakdown of the key tax benefits:
Offsetting Mortgage Interest: Unlike traditional buy-to-let properties, owners of FHLs can offset their mortgage interest payments against rental income, significantly reducing taxable income.
Capital Allowances: You can claim capital allowances on furniture, furnishings, equipment, and fixtures within the holiday let. This helps reduce your tax bill and makes it easier to maintain and upgrade the property.
Capital Gains Tax Relief: When selling your holiday let property, you may be eligible for capital gains tax reliefs such as Entrepreneurs’ Relief or Rollover Relief, which are not available for standard rental properties.
Business Rates: If your property qualifies as a FHL, you may be able to pay business rates instead of council tax, depending on how much it’s let out per year.
How Much Can You Borrow?
The amount you can borrow with a holiday let mortgage depends on a few factors:
- Personal Income: Most lenders require a minimum personal income alongside the projected rental income. This can range from £10,000 to £40,000, depending on the lender.
- Projected Rental Income: Lenders typically assess the expected rental income during both peak and off-peak seasons. Your projected income must usually cover at least 125-145% of your mortgage repayments. The more predictable your rental income, the more likely you are to secure favourable lending terms.
Wrapping Up
Securing the right holiday let mortgage is no easy task, especially with the niche requirements and fluctuating rental income involved. At Mortgage Knight, we simplify the process for you, offering tailored advice to help you find the best deals available in the market. Our team of experienced brokers will assess your financial situation, match you with the right lender, and guide you through every step of the process.
Whether you’re a seasoned investor or purchasing your first holiday let, we are here to ensure you make the most informed decisions. Get in touch with us today to discuss your options and secure a holiday let mortgage tailored to your needs.
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