What do holiday let mortgage lenders look for?

Holiday home ownership – whether for personal use or to let out to tourists – is something many people aspire to. However, unless you’re a cash buyer, then you’ll probably need a special type of mortgage to make your dream of buying a holiday property a reality.

There are two types of mortgages available for holiday property investments. The type you need will depend on your plans for the property.

If you’re looking to buy a property for you to enjoy with your family and friends, then a holiday home mortgage should meet your needs.

However, if you want to buy a holiday home that you plan to rent out to tourists and generate a second income, then it’s more than likely you’ll need a holiday let mortgage.

Holiday let mortgages are a particular type of mortgage designed for people buying holiday properties they want to let out on a short-term – rather than ongoing – basis.

As holiday let properties present a greater risk to mortgage providers, their lending criteria are often much stricter than those applied to standard residential mortgages.

Here, we take a closer look at what holiday let mortgages are and what lenders look for.

Holiday let mortgage criteria

As mentioned above, there’s more risk for the mortgage provider involved in lending against a holiday let property, so the lender will want to be sure you can afford the repayments, especially if your financial situation were to change suddenly. So, most holiday let mortgage lenders apply stricter criteria than they would for a standard residential mortgage, or even a buy-to-let or second home mortgage. While exact criteria vary from lender to lender, most will require you to:

  • Be an existing homeowner
  • Provide a deposit of at least 25%-35%
  • Have a minimum income of between £20,000 and £40,000, in addition to any potential rental income from the property you’re buying
  • Show potential rental income of between 125% and 145% of the interest payable on the mortgage
  • Have a clean credit history

It’s important to note here that with the right financial circumstances, some of the above criteria may not apply. For example, while several lenders have minimum income requirements, there are options available that don’t need this. And while some lenders require buyers to be owner-occupiers, others don’t.

That’s why it’s essential to seek advice from a specialist mortgage broker with expertise in the holiday let market. They’ll be able to help you find the best deal, advise on the options to suit your financial situation, identify the right lender(s) and support your application.

Why buy a holiday let property?

There are many benefits to buying and owning a holiday let. Once furnished and ready to go, it can provide you with a potentially lucrative additional income stream.

And because HMRC views holiday lets as income-generating businesses, if the property is rented out as a furnished holiday let, you may be able to claim certain tax benefits, including Capital Gains Tax, Entrepreneurs’ and Business Asset Rollover relief. You may also be able to offset your mortgage interest payments against your rental income when calculating profits and claim capital allowances for fixtures, fittings and furniture.

However, holiday let properties are subject to enhanced Stamp Duty thresholds, so you should consider these when working out the financials ahead of your purchase, as this can add up to a significant extra cost that needs to be factored in.

So, as well as seeking the services of a specialist holiday let mortgage broker, it’s also worth getting some independent and impartial advice from an accountant or tax professional with expertise in holiday lets.

How can I get a holiday let mortgage?

If you’re looking to buy a holiday let property, getting the correct type of mortgage is essential. However, navigating the holiday home mortgage market without any knowledge or expertise can be fraught with difficulty, so you may need help from a specialist mortgage broker. With the right advice and guidance, securing a holiday let mortgage can be a relatively straightforward process.

Our expert team has over 40 years of experience in the holiday let market and is dedicated to taking the stress away from getting the right mortgage.

We’ll provide honest, straightforward advice and guidance on the right way forward and help you arrange the deal that’s right for you to make your investment a holiday property as pain-free as possible. Get in touch today to find out more.