What is a Holiday Let Mortgage?
A Holiday Let Mortgage is simply a mortgage that is arranged on a property used solely for the purposes of a holiday or seasonal letting basis. The way that the mortgage itself works is no different to that of any other buy to let loan and can usually be set up on either an interest only basis or a capital and interest. The main difference is in the way that a lender typically assesses the loan amount permitted whereby, rather than a single monthly or annual rental income being used, a spread of the high, mid and low season rates are considered.
How do holiday let mortgages work?
Holiday Let Mortgages work in the same way that any other Buy to Let mortgage would. The main difference is that lenders offer these solely for the use of properties that are used or are intended to be used for a holiday or seasonal rentals rather than where a standard assured shorthold tenancy (AST) is in place or an HMO. With this different use of the property, the amount a lender will consider is also assessed differently where the maximum will typically be calculated using an average of the high, mid and low seasons rates. It is also not unusual for a lender to require the borrower to have a minimum personal income other than the rental property itself.
Can I get a mortgage for a holiday home?
In essence anyone can be considered for a mortgage for a holiday home subject to meeting the relevant lenders specific criteria for this area of their lending. The main thing however is that in most cases, if the use or intended use of the property is for a Holiday Let, the type of mortgage you arrange will not be that as for a standard buy to let but must be specific to the Holiday Let requirement. This can also invariably apply to properties used or intended to be used for letting via Airbnb.
If you are purchasing the property for you own personal holiday home then lenders will now typically look at this as a second residential and therefore your own personal income and expenditure will be taken into consideration for how much you can borrow rather than any rentable value.
What are the criteria for a holiday let mortgage?
Investing in a Holiday Let is a tempting proposition for many would be property investors with the potential high rental yields this type of let can command. Whilst the rent during the high and mid season can be exceptionally good especially when comparing to that which may be achieved on a standard tenancy, due to the slightly more complex nature of this type of rental, including possible higher levels on non occupancy, lenders’ criteria does become more specific to this sector. Each and every lender will impose their own specific rules and Holiday Let mortgage criteria but in general terms, expect some of the following:
- Applicants will need to own their own home
- Minimum age 21
- Minimum earned income (other than the subject property rent) £20000 pa
- Max loan to be calculated using an average of the rental income for high, mid and low season rates
- Minimum deposit 25%
As mentioned however, each and every lender will impose their own criteria so although the above can be used as an indication it is by no means a hard and fast list so, if interested it is certainly advisable to speak to a qualified holiday let mortgage expert.
How much deposit do I need for a holiday let?
Holiday Let mortgages will typically be regarded, for the purposes of underwriting and criteria, as that of a standard Buy to Let aside of the difference in how most lenders calculate how much you can borrow. With this in mind, if the property is used or intended to be used for a Holiday Let expect the amount of deposit required for a purchase to be 25% with some specialist lenders possibly still willing to consider up to 85% ie a 15% deposit. If the property is simply to be used by yourselves and not rented, as the lending will now be looked at with the view it is a second residential property the amount of deposit required could be reduced to 10%.
How much can I borrow with a holiday let mortgage?
Knowing how much you can borrow for a Holiday Let can be a critical element of assessing the subject properties “value” to you as an investor. As a Holiday Let will typically have a varied level of income throughout the year rather than a set monthly rent received from a standard single dwelling assured shorthold tenancy (AST), many lenders will assess how much you can borrow using a spread or average of the rentable value covering the high, mid and low season rates. A stress rate will then be applied to the interest rate used for the calculation. This can and does vary from lender to lender but as a good guide the following can be used to give an indication:
Fixed rate less than 5 years or a variable rate = 125% @ 5.5%
Fixed rate of 5 years or more = 125% @ 5%
- High season @ £700 pw
- Mid season @ £500 pw
- Low season @ £300 pw
Average equates to £500 pw that over 30 weeks = annual rental figure of £15,000
Using the calculation for the maximum loan when a 5 year fixed or more is taken this would give a maximum lend of £206,896 (subject to any maximum loan to value).
Holiday let mortgage rates
The Holiday Let Mortgage market is a relatively specialist area but as with most things, if you know what you are doing or have an expert to help things can be much easier especially when looking into the interest rate. Due to the greater niche of this type of lending it does in turn give a much smaller pool of choice of lenders however this reduced choice does not necessarily mean inferior rates. The interest rates available will invariable be on a par with those of standard buy to let rates and those available to you will be determined by factors such as:
- The size of deposit or amount of equity
- Your credit history
- Property type
- Expected rental income
Holiday let mortgage lenders
The Holiday Let Mortgage sector does come with a reduced level of lenders available simply due to the perceived higher risk however having less choice does not necessarily mean inferior options. Albeit very limited, some well known and recognised names still entertain Holiday Let Mortgage loans and tend to offer the more competitive rates but, there are also still a variety of smaller building societies and specialist lenders who offer mortgages for your Holiday Let property.
Each lender will have their own rules of criteria including how they assess how much you can borrow and therefore we strongly recommend you carry out thorough research or look to use a specialist broker who can do this on your behalf.
Can I get an interest only mortgage for a holiday let?
Holiday Lets will invariable come with a less stable income stream than your standard single dwelling assured shorthold tenancy (AST) and a higher potential risk of rental voids when the property is not let. Due to this some investors will look at ways of offset this risk by keeping their contractual mortgage payments as low as possible. With this in mind one question that is invariably asked is “Can I get an interest only mortgage for a holiday let?” The answer to this is yes. A Holiday Let mortgage can be arranged on the same basis as any other Buy to Let Mortgage that includes the option to have it set up on a pure interest only basis, a capital and interest or indeed a split of the two. Do however please be aware that if any of the borrowing is arranged on an interest only basis it is your responsibility to arrange a repayment strategy.
Are holiday let mortgages more expensive?
Holiday Let mortgages are typically viewed as a more niche area of the mortgage sector and as such there are fewer lenders available, that in turn results in less competition. However, even though this may be the case, they are typically not any more expensive than a standard buy to let mortgage. This being true you will still have to fulfil the lenders criteria and this is where the greater limitations in providers could possibly result in a more expensive loan should the lenders with the better schemes not be available.
Can I get a holiday let mortgage with bad credit?
Having a history of Bad Credit when being considered for any mortgage will likely have an impact. This could ultimately result in a decline or possibly for those who are approved offered with an inferior product due to the perceived higher risk to the lender. It is however still possible to obtain a Holiday Let Mortgage with Bad Credit but, due to the very limited nature of the availability in the first place of these niche mortgage types it is typically that more difficult to find a suitable lender.
Many factors are still taken into consideration when applying for a mortgage and should you find yourself with a starting point in the knowledge that you have any Bad Credit, we strongly recommend speaking to a specialist Bad Credit Mortgage adviser with the experience of the Holiday Let Mortgage market who should be able to assist.
Holiday let mortgage advice
Obtaining a mortgage of any type can be a daunting experience for many however, add to this a much more specialist and exacting area such as Holiday Let Mortgages and this can truly feel impossible. The Holiday Let Mortgage market is a much more niche area of lending and with this typically comes much less choice. Having fewer lenders to consider may on the face of it lead you to believe that it will be an easier task finding the right one however, with many of the lenders in this sector being much less recognised they may not always be easily accessible. You can also add to this, that the criteria will vary from lender to lender and that finding the ones that you are eligible to use or who can assist you for your specific requirements is in itself a time consuming exercise.
In our opinion, speaking to a specialist Holiday Let Mortgage Broker is the best way to ensure you are given the most appropriate advise for your individual circumstances and requirements. In turn, this makes the whole process of arranging the finance a much easier and enjoyable experience.