What we cover in this guide
- How do Holiday Let mortgages work?
- Read our Buy-to-Let guide
- Try our Buy-to-Let mortgage calculator
- What Holiday Let mortgage criteria do I need to meet?
- Can I get an Interest-only mortgage for a Holiday Let
- Can I get a Holiday Let mortgage with bad credit?
- How much deposit do I need for a Holiday Let mortgage?
- How much can I borrow with a Holiday Let mortgage?
- Are Holiday Let mortgages more expensive?
- Holiday Let mortgage lenders
- Holiday Let mortgage advice
How do Holiday Let mortgages work?
There are only slight differences between Holiday Let mortgages and any other kind of Buy-to-Let mortgage. As these loans are for properties that will be used for holiday rentals or seasonal use, borrowing is assessed differently.
For a standard Buy-to-Let, lenders will consider annual, monthly, or weekly anticipated rental income. Whereas with a Holiday Let, they will take an average across the expected spread of high, mid, and low-season rates. They may also expect you to have a minimum personal income, apart from the rental revenue, for extra security.
Can I get an interest-only mortgage for a Holiday Let?
Fortunately, the answer is yes. A Holiday Let mortgage can be arranged in the same way as a standard Buy-to-Let mortgage. Therefore, interest-only or capital-plus interest payments can be arranged, or even a mix of the two.
Property investors in this sector will seek to keep their mortgage payments as low as possible. This is because rental yields on holiday lets are less predictable than those of standard Buy-to-Lets, with a risk of frequent periods where a property is vacant.
Hence, we are often asked: “Can I get an interest-only mortgage for a Holiday Let?”
You must bear in mind that if your mortgage is on an interest-only basis, you will need to have a repayment plan for the loan.
Can I get a Holiday Let mortgage with bad credit?
Yes, it’s possible to get a Holiday Let mortgage with bad credit.
When applying for a mortgage, a bad credit history will have an impact on your application. This may result in it getting refused or being offered a less-attractive product.
When considering a Holiday Let mortgage, the chances of this happening are even greater due to the limited number of lenders. Making it difficult to find a suitable lender to meet your needs.
The type of bad credit event and the length of time since it occurred will have a lot of bearing, as will your more recent credit history and your current financial status. If you can show you have recovered, you will be on much firmer footing. We strongly recommend speaking to a specialist mortgage advisor with knowledge of the markets.
How much deposit do I need for a Holiday Let?
You can expect lenders to require a deposit of around 25%. There may be some who will be willing to accept as low as 15%, giving you a loan-to-value rate of 85%. This is essentially the same amount that is required for a standard Buy-to-Let.
If you are simply buying a property to use as your own holiday home, then it will be viewed as a second residence. Therefore, deposit expectation will be in line with that of a standard residential mortgage – around 10%.
How much can I borrow with a Holiday Let mortgage?
Being aware of how much you could borrow is a crucial factor in determining whether the investment will be a viable proposition. Lenders typically assess using an average or spread of the potential rental income. They will take this from the high, low, and mid-season rates.
The lender will then apply a stress rate to this figure. This is usually assuming an average rental level of 125% of the mortgage payments, to allow for costs. They usually assume the property will be occupied 30 weeks through the year. For example:
- High-season – £700
- Mid-season – £500
- Low-season – £300
Average rate = £500 x 30 weeks = annual rental figure of £15,000
They would then work backwards from this figure to find the level of affordable mortgage payments per year.
The maximum loan using a 5-year or longer fixed-rate deal of 5% would give a maximum mortgage of £206,896. This is subject to any maximum loan-to-value criteria.
Are Holiday Let mortgages more expensive?
It’s true that with fewer lenders offering these mortgages, there is less competition in this sector of the market. However, this has not yet resulted in higher rates and uncompetitive terms. Therefore, you should not expect a Holiday Let mortgage to be any more expensive.
This said, you will still need to meet the lender’s individual criteria for creditworthiness and affordability. This may mean that you will be faced with a more expensive loan if you are not perceived as suitable by lenders.