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Holiday let mortgages: Everything YOU need to know

Holiday let mortgages are a breed of their own – and unfortunately, not every bank or building society offers them. With a limited pool of choices and a lot of new criteria to meet, we’ve put together this short guide on everything you wanted to know about holiday let mortgages.

Do I need a holiday let mortgage?

do I need a holiday let mortgage

If you’re hoping to buy property as a holiday let or  convert the use of a current property you already own into a holiday let, you may need to look for holiday let mortgages.

It’s important to get the right mortgage for the use of your property as misleading your mortgage lender, or not informing them of an intended change of use, is a type of mortgage fraud. If your lender finds out that you have committed mortgage fraud, your loan can be ‘called in’ – meaning you need to pay the full amount of the loan immediately.

This usually means that you need to get a new mortgage, which will be very hard to find if you have fraud on your record. Mortgage fraud is a serious crime in itself and in some circumstances you could even receive a criminal record and custodial sentence for committing mortgage fraud.

But don't panic.

Hopefully if you've landed here you're doing your due diligence and making sure you get the right mortgage to start out with. AND we can offer a lot of help to get you on your way to the best deal on your holiday mortgage, as we even own some of our own holiday homes here at Click Book Stay.

There are certain criteria you need to meet in order to become a holiday let owner that are different to becoming a buy-to-let or residential property owner, for example holiday lets must be:

  • Fully furnished
  • Available for let for a minimum of 210 days per year
  • Let for a minimum of 105 days per year
  • Not let to the same person(s) for any longer than 31 days at a time

You also need to ensure that your holiday let has regular health and safety checks, as well as appropriate insurance cover in case anything goes wrong. Running a holiday let is a commercial venture and taxes will apply, just as they do with buy-to-let properties.

However, there are some bonuses to running a property as a commercial venture, such as tax relief with business expenses.

For more information on taxes on holiday let rentals, please see the government website here.

How much could I borrow?

How much you can borrow on a holiday let mortgage varies depending on your financial circumstances. Your income will be a factor as well as credit rating, current outstanding loans and the amount of capital you can raise for a deposit.

Unlike private residential purchases, you will need a much larger deposit to qualify for most holiday let mortgages. Most holiday let mortgages require a minimum of 30-35% of the purchase price, however, you can apply for a lower 25% deposit with some holiday let mortgages from the Cumberland Building Society.

Once you have raised enough capital for the deposit, you’ll simply need to show that your current earnings can cover the mortgage payments sensibly. For more detailed information on your individual case, we advise either talking to an independent mortgage broker or speaking directly with a lender such as the Cumberland Building Society.

holiday let mortgages common questions

Can I convert my current mortgage to a holiday let mortgage?

If you have 25-35% equity in your current home, there's a good chance that you could remortgage your home as a holiday let.

Some lenders will allow you to convert your current mortgage into a holiday let mortgage, but be aware that it’s likely that they will require a higher interest rate on the mortgage as it’s a commercial venture.

If they don't allow you to change the current mortgage, they may offer you an entirely different mortgage product. It's a good idea, either way, to ask your lender about your options before diving into renovating your current home into a holiday let.

If your lender is offering a rate that you’re not happy with, remember you can look to remortgage with a different lender; we’d recommend checking out Cumberland Building Society at least or if you’re short on time, going to an independent mortgage advisor.

Can I remortgage my home to buy a holiday let?

The deposit required for a holiday let mortgage is one of the highest you’ll find, usually around 30-35%, or fortunately from 25% from some lenders like the Cumberland Building Society. Because it’s a large down payment, some people choose to remortgage and release equity from their current home to afford a holiday let property.

This is entirely possible and is a great way to gain the funds needed for your new venture into holiday home rentals.

Before you rush into remortgaging your home though, it's important to go in with your eyes wide open. Make sure you have income that will help fund both mortgages in low seasons and that you do your research to find out whether the yearly income from the holiday let will be profitable enough to warrant the risk.

How do I get the best deal on my holiday let mortgage?

how do I get the best deal on my holiday let mortgage

Getting the best deal on your holiday let mortgage can be tricky; especially as there are a limited number of lenders available. However, there are a few tips that the Cumberland Building Society offered:
Get a large deposit
You’ll need a larger than usual deposit to get a holiday let mortgage (typically the maximum loan size you can get is 75% loan to value). In general, however, the higher the deposit you can come up with, the better interest rate you’ll also get in return.
Mortgage brokers won’t always get you the best deal
Mortgage brokers can be a great option; sometimes they have access to deals that you won't. However, remember that brokers don't work for free – they'll most likely add a charge for their work, so going directly to a broker isn't always the answer. It's worth going directly to some lenders to compare offers before choosing the best deal for you.
Ask your current lender (if you have other mortgages)
Your current lender might offer a good rate if you already have a mortgage with them, so it’s a good idea to get at least get a quote for a holiday let mortgage from them even if you are working through a broker.

More questions on holiday let mortgages?

We hope you’ve found this guide helpful, but if you have any unanswered questions, we’d love to help. Either contact us here or contact The Cumberland Building Society who kindly helped contribute to this article and have plenty of free advice!

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