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What is a Holiday Let mortgage?

A holiday let mortgage is a specialist loan designed to fund a rental property that you wish to let out for short term lets. A holiday let is usually run as a business, examples include Airbnb, booking.com etc, stays are typically a few nights up to a couple of weeks at a time.

A holiday let mortgage is different from both residential and buy to let mortgages where the short-term letting would be in breach of the terms and conditions.

Holiday let mortgages are also treated differently by the HMRC for tax purposes. It’s always important to see specialist tax advice from your Accountant if you’re inexperienced with holiday lets.

The Financial Conduct Authority does not regulate some types of buy to let or commercial mortgages.

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How to get a holiday let mortgage.

Getting a holiday let mortgage is a similar process to a standard buy to let mortgage application.

You’ll need the following to get a holiday let mortgage:

  • 25% minimum deposit.
  • Good personal income employed or self-employed.
  • Rental income projections must cover the mortgage plus an additional 25% to 40%.
  • Existing homeownership is an advantage.
  • Aged 21+.

You’ll also need to provide documentation such as identification, bank statements, evidence of your deposit, and details of your personal income. As part of the holiday let mortgage application process you may also have to provide projections of your rental income to assess if they are reasonable for the area.

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Why use a holiday let mortgage broker?

Using a holiday let mortgage broker for your application will likely increase your chances of being accepted.

Holiday let mortgages are specialist products, therefore experience and in-depth knowledge of lending criteria is required to select the best lender for your personal situation.

Getting a holiday let mortgage isn’t easy and it’s possible that there will be hurdles to overcome along the application journey, your mortgage broker will use their knowledge to help you present yourself in the best light to the lender.

Find out how much you can realistically borrow and how much your holiday let mortgage will cost with a mortgage broker.

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Holiday Let Mortgages - Frequently Asked Questions

How do holiday let mortgages work?

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Holiday let mortgages are very similar to regular buy to let mortgages, they are available both on a repayment and interest only basis and you can choose a fixed or variable interest rate deals.  

Landlords that apply for holiday let mortgages are often running a business and are looking to make a profit from their investment, this is why most landlords choose holiday let mortgages on an interest only basis.  

If you have lots of equity in your property you are able to remortgage a holiday let to release equity, this can be used to fund home improvements to enhance the value and/or rental income received.  

How much deposit for holiday let mortgage?

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25% minimum deposit is required for a holiday let mortgage.  Generally, the maximum loan to value on a holiday let mortgage is 75%.    

Holiday let mortgages require a bigger deposit that regular buy to let mortgages due to the short-term nature of the lettings being deemed as higher risk by the lenders.  With regular buy to let mortgages you’ll typically have a minimum 6-month tenancy agreement in place which provides stable income.  

Holiday lets can be more seasonal making your income more unstable over the year.  With a holiday let mortgage, you’ll also need to have a good amount of personal income to cover any periods of no rentals.  

How to get a mortgage for a holiday let?

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How you get a mortgage for a holiday let is a similar process to getting a regular buy to let mortgage. 

Here is a list of things that you will need to get a mortgage for a holiday let:   

  • 25% minimum deposit. 
  • Good personal income employed or self-employed. 
  • Rental income projections must cover the mortgage plus an additional 25% to 40%. 
  • Existing homeownership is an advantage.  
  • Aged 21+. 

You’ll also need to provide documentation such as identification, bank statements, evidence of your deposit, and details of your personal income.   As part of the holiday let mortgage application process you may also have to provide projections of your rental income to assess if they are reasonable for the area.  

What mortgage do I need for a holiday let?

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A specialist type of mortgage is required for a holiday let; these are known as holiday let mortgages. These can either be in your personal or limited company name.  

Holiday let mortgages are designed for investors looking to rent their property for short term periods of one night up to a couple of weeks/months.  

Regular mortgages are not suitable as they are designed for you to live in the property, any rentals here would be breaking the terms and conditions of your mortgage and could result in a lawsuit with your current lender and a demand for the repayment of your loan in full.   

What type of mortgage for holiday lets?

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You’ll need a specialist type of mortgage for holiday lets called a holiday let mortgage.  A mortgage for holidays lets can be in either your personal or limited company name.   

A mortgage for holiday lets can either be on a repayment or interest only basis with both variable and fixed rate deals available.  Most landlords choose to have their mortgage for holiday lets on an interest only basis to keep their costs low and maximise profits.  

How long for ltd company holiday let mortgage?

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The length of time it takes for a limited company holiday let mortgage is typically: 

  • 30 mins free consultation to find out your options.  
  • 1 hour of collecting your documents together. 
  • 1 hour for an application completion. 
  • 7 to 14 days to receive a holiday let mortgage offer. 
  • 2-3 months legal conveyancing process.   

Are mortgages for holiday lets always repayment?

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Mortgages for holiday lets can be both on a repayment or interest only basis, however, most landlords choose interest only to keep their costs low and maximise profits.  

Can I convert my holiday let mortgage to residential?

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Yes, you can. If your circumstances have changed and you’ve decided to live in the property, you’ll need to convert your mortgage to a residential product.  

An experienced mortgage broker can sort this out for you and make sure you get on the best deal available to you.   

If your existing lender does residential mortgages, they may offer you a product transfer mortgage deal, if not, you’ll have to explore your remortgage advice options.   

8 Reasons to choose UK Moneyman

Open all throughout the week, from early until late.

We have the flexibility to work around your busy schedule, offering appointments out of hours if necessary.

Free Holiday Let Mortgage Appointment.

No fees payable upfront, we are only paid if we get results.

You will be allocated a dedicated case manager.

You won't have to worry about being passed around, you'll deal with the same people throughout your process.

We build relationships with landlords, whether a Holiday Let or a regular buy to let.

Holiday Let's can be challenging, as you have to prove you can make up your payments on periods where you may not have a tenant. We'll help you to evidence your income.

Our team will provide jargon free insurance advice.

With a range of insurance products available, we can help find you the one that is suitable for you should you become seriously ill and unable to work.

1000s of possible Holiday Let mortgage options.

We will look around to find you the most suitable mortgage deal for your Holiday Let.

We have a lot of experience and knowledge of Holiday Let criteria.

We've encountered various Holiday Let mortgage scenarios before. We'll use our expertise to help find you the best deal.

Your mortgage advisor will be with you every step of the way.

In the mortgage process, your dedicated mortgage advisor will help overcome any hurdles like issues with property surveys and down valuations.

10 Step Guide to a Holiday Let Mortgage

1. Understanding Holiday Let Mortgages

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Holiday let mortgages are loans specifically designed for individuals or investors looking to purchase properties to rent out as short-term holiday accommodations.

These properties are often in tourist hotspots, coastal regions, or areas with high tourist traffic.

2. How They Differ from Standard Mortgages

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Holiday let properties are not used as primary residences; instead, they’re for short-term rentals to holidaymakers, typically for periods of a couple of nights up to a couple of weeks.

Holiday let mortgage lenders consider projected rental income when assessing affordability, unlike standard mortgages where personal income is the primary factor.

Due to fluctuating tourism and seasonal demand, holiday let mortgages might carry slightly higher risks compared to traditional residential mortgages.

3. Eligibility and Criteria

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Holiday let mortgage lenders typically require a minimum projected income from holiday rentals to consider the application.

The location’s attractiveness to tourists and potential rental income heavily influences approval.

Also, a higher deposit of 25%+ is required compared to standard mortgages due to the higher risks involved.

A good credit history is essential, although lenders may be more flexible depending on other factors.

Holiday let mortgage lenders might have specific criteria; hence, it’s advisable to research different lenders or seek advice from an experienced mortgage broker.

4. Interest Rates and Fees

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Interest Rates: Rates for holiday let mortgages can be slightly higher than standard residential mortgages due to perceived higher risk.

Also, mortgage arrangement fees, valuation fees, and early repayment charges might apply. Some lenders also have additional fees for holiday let mortgages. Your mortgage broker will run you through all the fee options with a view to save you both money and time.

5. Calculating your Affordability

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Holiday let mortgage lenders evaluate the property’s rental income potential alongside the applicant’s financial situation to determine affordability.

This includes the projected rental income which is based on the property type, location, and seasonal demand. Also, your personal Income will be factored into the assessment to ensure that you can afford the mortgage payment in a period of downtime.

6. Tax Advice

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It’s always advisable to work alongside a reputable accountant to ensure you are paying the correct amount of tax with a holiday let property.

There are two main types of tax to consider:

  • Income Tax – All rental income is taxable. However, there are allowances and deductions available, such as mortgage interest, maintenance costs, and other expenses related to the holiday let. It’s always best to check the up-to-date rules with your Accountant.
  • Capital Gains Tax – Selling a holiday let property might incur capital gains tax, but there are exemptions and reliefs available based on specific criteria.

7. Management and Regulations

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Holiday let property owners need to handle property management, including cleaning, maintenance, and ensuring a good guest experience. Typically, they will have a few of these properties and use the same services or do it themselves on a regular basis.

Also, the regulation with holiday let properties is detailed. There may be licensing requirements depending on the location.

8. Benefits of Holiday Let Mortgages

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There is a potential for higher income with a holiday let property, the rental rates for holiday lets can be higher than long-term residential rentals.

There is also an amount of flexibility where owners can use the property themselves for holidays when it’s not rented out. This is limited to several weeks a year so it’s always best to check the latest rules on the HMRC website.

Holiday let mortgages provide a good investment opportunity for landlords, especially in the high-demand tourist areas. Various websites such as Airbnb and booking.com for example are doing well for short term bookings.

9. Risks Associated

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Holiday lets are seasonal, and income can fluctuate in the off-peak seasons, when it’s good it’s good, however, the off-peak seasons can seem long when you have a holiday let mortgage to pay every month.

Also, due to the short-term nature the cleaning costs will be high which can impact profits. A typical holiday let landlord will have a couple of properties and do the maintenance and cleans themselves to maximise profits.

10. The Importance of Advice.

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When considering doing holiday lets and getting mortgages, it’s always important to see great advice along the way to save you both time and money.

Working with an experienced mortgage broker will ensure that you have the best mortgage deal available to you and that the application process goes smoothly.

Also, a reputable accountant will be able to keep you up to date with the latest tax changes and can prepare your accounts.

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UK Moneyman Limited is Registered in England, No. 6789312
Registered Address: 10 Consort Court, Hull, HU9 1PU.

Authorised and Regulated by the Financial Conduct Authority.

We are entered on the Financial Services Register No. 627742 at www.register.fca.org.uk

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