Looking into holiday let mortgages? Buying a property to let out in an attractive location can give great returns. However, like other mortgage products, holiday let mortgages aren't accessible to everyone, and finding the best mortgage deal requires some savvy and, realistically, a large deposit. Here, we explain the ins and outs of taking on a holiday let mortgage.
What is a holiday let mortgage?
A holiday let mortgage is a specialised mortgage product that you need if you're buying a property to let out on a short-term basis to holidaymakers as a business venture. The lender of such a mortgage will assume that you won't live in the property yourself for most of the year, although you are allowed 22 weeks of the year to use the property yourself. The criteria for this type of mortgage are similar to a buy to let mortgage, but they are even more stringent.
Is a holiday let mortgage the same as a holiday home mortgage?
No, because a holiday home is counted as a second live-in property for you; a holiday let assumes it will be let out to lots of different people throughout the year.
How much deposit do I need for a holiday let mortgage?
As a general rule, be prepared to put together a 30 per cent deposit as a minimum. And, as with other types of mortgages, the more deposit you can put down, the better interest rates you'll be able to access. These are typically higher for a holiday let mortgage than a residential mortgage (between two and four per cent), so a larger deposit puts you in a better position to maximise your profit.
How much can I borrow for a holiday let mortgage?
Holiday let mortgages are an even greater risk to the lender than ordinary buy to let mortgages, because the risk that the property will stand empty for periods of time (making it necessary fo you to make the repayments) is even greater than with buy-to-lets, which at least have the security of longer-term tenancies.
For that reason, before deciding how much to lend, or whether to lend at all, the lender will want to be satisfied that the property will be able to generate at least 125 per cent of the mortgage repayments, and in many cases as much as 145 per cent. Some lenders will also impose limits on how much they will lend (no more than £1 million, say), and may not lend to you at all if you already have a large residential mortgage.
If you can provide your lender with some kind of a reassurance of a financial backup (most likely savings), you are much more likely to get approved.
Can I use an existing buy to let mortgage for a holiday let?
In a word, no. Which is not to say that people don't do this, but the consequences of being found to be using an ordinary buy to let mortgage for a different purpose can be severe, including the lender demanding you repay all of the loan, or putting you a fraud blacklist. There have been cases of lenders finding out about improper use of a mortgage via neighbours who complained to their council about the noise made by holidaymakers next door. It's always best to discuss any planned change of use of a property with your lender in advance.
Can I remortgage to fund a holiday let mortgage?
Yes, and many people do remortgage in order to free up capital for a holiday let mortgage deposit. If you're close to paying off your residential mortgage, you may consider releasing equity, too, although that will have tax implications for your holiday let business, so it's best to contact a tax advisor first.
We've teamed up with online mortgage experts Habito to help you find the very best deals, whether you're taking on a buy to holiday let mortgage for the first time, or you are remortgaging in order to start a holiday let business. Use their online tool below to see how much you could borrow. You can then have an online chat with them, and they will advise you on the next stages, helping you assess affordability and giving you impartial advice to ensure you get the best deal.