9 things about Holiday Let mortgages you should know

Dreaming of owning a holiday home? Whether as an investment or a space for relaxing getaways, more and more people are living out their ‘A Place in the Sun’ dream here in the UK. Information about holiday let mortgages is often sought after – but many don’t have easily accessible information about how they work.

If you’re thinking about buying a holiday let, there’s a lot to consider ahead of time. Whether you’re a first-time landlord, looking to diversify, or looking for a second property for rental income – we’ve set out 10 things you need to know before taking the plunge.

You need a specific mortgage for a Holiday Let

Unfortunately, a standard residential mortgage or buy-to-let mortgage isn’t suitable for short-term holiday lets – you’ll need a specific holiday let mortgage. Affordability checks can be much tighter – as a holiday property is often seen as a second home, lenders will want to be sure you can comfortably cover the mortgage for both properties.

Holiday Let’s have higher deposit requirements

For similar affordability reasons, there are usually higher deposit requirements – at least 20% compared to standard mortgage deposits. With holiday lets, rental income isn’t typically as secure as a buy-to-let at home might be – and can fluctuate – meaning lenders will often require greater collateral in the purchasing process.

There are tax advantages compared to a Buy to Let

A big potential perk of a holiday let is the opportunity for tax benefits such as mortgage interest relief – for example on furnished holiday let’s (FHL’s.) Recently, these have been slightly adjusted but there are still significant benefits in areas such as Capital Allowance and tax-deductible expenses – which mean you can offset some expenditure on purchases such as furniture.

Location matters for lenders

It’s important to acknowledge before embarking on your holiday let journey that some lenders will only offer holiday let mortgages in high-demand tourist areas – so going off-the-beaten-track can make mortgage approval significantly less likely. It’s also important to consider seasonal demand when it comes to mortgage approval; areas with year-round footfall are a safer bet for buyers than offering on a property with seasonal peaks and troughs.

There are specific occupancy rules

By now you may be realising that there are a whole host of things to consider compared to a buy-to-let mortgage. Another is rules around occupancy – for a property to qualify as a holiday let, you must adhere to minimum and maximum rental periods. There are also restrictions on personal use of the property when you have a holiday let mortgage – you can’t just treat it as a second home!

Mortgage rates can be higher than a standard Buy-to-Let

In a similar vein to deposits on your new property, mortgage rates can also be higher than a standard buy-to-let, for similar reasons. Shorter rental periods and uncertainty over rental income can mean that higher repayments on the property are required – making affordability checks more stringent.

Lenders may require a managing agent

Many lenders prefer that borrowers use a professional property management service, rather than managing the property independently. There are benefits to this for both parties – particularly when it comes to maintenance and compliance – as well as knowledge of the local area.

Holiday Let insurance is essential

Perhaps unsurprisingly, there’s a need for specialist holiday let insurance as standard landlord insurance isn’t suitable. Concerns over damage, loss of income due to uncertain rental periods, and liability risks mean specialist insurance is required – and a cost that should be considered ahead of time.

Holiday Let mortgages are becoming more popular

With the rise of work from home and work from abroad since the pandemic, there’s a major growth in demand for UK holiday lets as working people focus on work-life balance. As a result, lenders are expanding their offering in this space – and it’s an exciting time to explore the new opportunities.

Bath Building Society is one of only a few lenders to offer holiday let mortgages for people who want to buy a property to rent as a holiday let. We will consider remortgaging an existing holiday let property for home improvements or purchase of another property. Personal use of the property is permitted for up to 60 days and we will allow the property to be let out as an Airbnb during periods when the property is unoccupied.