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Finance for Holiday Lets

Property News

Holiday let investments are on the rise owing to the increase in demand for staycations. Holiday homes can be a lucrative business when compared to longer-term lets. A good quality property in a sought-after holiday location could bring you in three times the annual income of a standard buy to let property.

Investors looking to fund a holiday home will need a specific ‘holiday let’ mortgage rather than a standard buy to let loan. Finance can be secured to buy, convert, refurbish, and operate holiday homes.

Our Director of Commercial, John Shevlane, answers your most commonly asked holiday let questions.

What is the maximum loan available?                                                                             

 Holiday let mortgages typically offer between 70-75% of the property value. Investors will require between a 25-30% deposit.

What is the minimum loan size?                                                                                                      

This depends on lender availability. Some lenders have a starting loan size of £50k but, most begin at around £200k and some have a starting point as high as £400k

What is the best rate available?                                                                                                        

Investors applying under a limited company can expect rates of 3.44% (2year Fixed) and 3.59% (5year Fixed)

Are holiday let mortgages available to first time landlords?                                                                                         

Yes, but lender availability for first time landlords is restricted. First time holiday let investors will see slightly higher rates of between 4.20%-4.99%

Can landlords let out individual rooms under a holiday let mortgage?                                                                                                     

Individual room rentals are restricted on the standard products, but some commercial lenders will support this.

Does location matter?                                                                                                                         

Each lender has their own criteria when it comes to location. Some lenders, and typically those with the best rates, will expect the property to be in a popular holiday destination.

How does a lender assess serviceability?                                                                                  

Lenders will want to see that the projected letting income is well above the annual mortgage interest. This generally requires a rental income, after the agent’s commission, to be at least 125% of the mortgage interest, calculated at an interest rate of 6%.

Lenders assess this in different ways. Some will look at expected gross market rental, as provided by the agent or valuer. Others will assess serviceability using standard residential assured residential tenancy (AST) income.

Any other considerations?

Lenders will want reassurance from the valuer that the property could revert to a standard AST (rental property) if necessary. For example, if there is insufficient letting demand for short term lets.

If you are looking to finance a holiday let where there is a restriction on title for holiday let use only, you’ll need to source a specialist lender. Typically lenders seek assurance that the property can be sold as a residential dwelling in the event of default.

Are holiday lets a good investment?

Holiday lets afford investors a number of advantages over traditional buy-to-let investments, with the average net yield on a holiday let at 6.1%, compared to 5.0% on a traditional buy-to-let. The average occupancy level for holiday lets is between 20 and 24 weeks per year. However, high performing properties in popular locations can achieve over 40 weeks booked. The consideration with such investments is that they require a more hands on approach. 

An additional benefit of holiday lets is that HM Revenue & Customs categorises holiday homes as businesses, meaning they are exempt from the mortgage tax-relief changes which were introduced in 2017.

Finally, for some, holiday lets offer the intrinsic benefit of having their own holiday home. A place which both they and their family can enjoy whilst also generating a profitable return.

Explore your holiday let mortgage options with our commercial team.

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