Decoding Holiday Let Mortgages: Cost Analysis and Insights for 2023

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The Insider @ Houst
Last updated on
February 27, 2023

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Decoding Holiday Let Mortgages: Cost Analysis and Insights for 2023

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Picture yourself waking up to the sound of waves crashing against the shore or the peaceful rustle of leaves in the countryside. Imagine owning your own holiday let property in the UK, where you can escape the hustle and bustle of everyday life and generate income through holiday rentals. 

If this sounds like a dream come true, you're not alone! Investing in a holiday let property can be a smart financial move, but it requires careful planning and consideration.

One of the most important steps in financing your holiday let property is finding the right mortgage provider. In this article, we'll discuss how you can secure your holiday let mortgages in the UK and help you get one step closer to turning your holiday let dream into a reality.

Table of Contents

What is holiday let mortgage?

A holiday let mortgage is designed specifically for people who want to purchase a property to use it as a holiday rental. Essentially, a holiday let mortgage allows you to buy a property that you can rent out to vacationers or other short-term renters, generating income for yourself.

What is the difference between a buy-to-let mortgage and a holiday let mortgage?

Buy-to-let mortgages and holiday let mortgages are both types of mortgages used for property investment purposes, but they differ in several key ways:

1. Intended use of the property

A buy-to-let mortgage is used to purchase a property that will be rented out long-term, typically to tenants who sign a lease for six months to a year or more. In contrast, a holiday let mortgage is used to purchase a property that will be rented out on a short-term basis, typically to vacationers who stay for a week or less.

2. Rental income

With a buy-to-let mortgage, the property is rented out long-term, so the rental income is typically lower than with a holiday let. However, with a holiday let mortgage, the rental income can be higher, but it may be more variable depending on seasonal demand.

3. Furnishing requirements

A buy-to-let property is typically unfurnished or semi-furnished. A holiday let property must be fully furnished and equipped to a high standard to attract short-term renters.

4. Occupancy requirements

With a buy-to-let mortgage, the tenant is expected to live in the property long-term and make it their home. With a holiday let mortgage, the property must be available for rent for a minimum number of days per year and cannot be used as a full-time residence.

5. Mortgage terms

Interest rates on holiday let mortgages can be higher than those on buy-to-let mortgages due to the higher risk associated with short-term rentals.

Continue reading: Exploring Second Home Mortgages for Profitable Property Investments

What is the holiday let lending criteria?

The lending criteria for holiday let mortgages can vary depending on the lender, but there are a few common factors that most lenders will consider when evaluating an application:

  1. Property type: The property must be suitable for use as a holiday let and meet certain requirements, such as being fully furnished and equipped to a high standard. It may also need to be located in a desirable tourist area or have easy access to local attractions.
  1. Rental income: The property must have the potential to generate sufficient rental income to cover the mortgage payments and other associated costs. Lenders may require evidence of past rental income or projections of future rental income.
  1. Occupancy requirements: The property must be available for rent for a minimum number of days per year, usually around 105 days, and cannot be used as a full-time residence.
  1. Borrower income: Lenders will evaluate the borrower's income and credit history to ensure they can afford the mortgage payments and have a good track record of managing debt.
  1. Deposit: A larger deposit may be required for a holiday let mortgage compared to a residential mortgage, typically around 25% to 40% of the property value.
  1. Insurance: Lenders may require the borrower to have specialized holiday let insurance to cover any potential losses or damages associated with short-term rentals.

How much does holiday let mortgages cost?

The cost of holiday let mortgages can vary depending on a number of factors, such as the lender, the amount borrowed, the loan term, the interest rate, and the borrower's credit score and financial history.

Generally speaking, holiday let mortgages tend to have higher interest rates and require larger deposits compared to traditional residential mortgages. Some lenders may require a deposit of at least 25% or even 40% of the property value, while interest rates may range from around 3% to 6% or more depending on the lender and the borrower's circumstances.

In addition to the interest rate, borrowers may also be required to pay various fees associated with taking out a holiday let mortgage, such as arrangement fees, valuation fees, legal fees, and survey fees.

What companies provide a holiday let mortgage in the UK?

There are a number of companies that provide holiday let mortgages in the UK. Here are some of the most well-known providers:

  • The Mortgage Works (part of Nationwide Building Society)
  • Hinckley & Rugby Building Society
  • Ipswich Building Society
  • Furness Building Society
  • Leeds Building Society
  • Principality Building Society
  • Bath Building Society
  • Monmouthshire Building Society

It's important to note that not all mortgage lenders offer holiday let mortgages, and those that do may have specific criteria and requirements that you need to meet in order to be eligible for a mortgage. It's also worth shopping around and comparing different lenders' rates and terms to ensure you find the best deal for your specific needs.

Conclusion 

Investing in a holiday let property can be a great way to generate income and build wealth, and a holiday let mortgage can make it easier to finance your purchase. With the help of a reputable mortgage provider and careful financial planning, you can turn your dream of owning a holiday let property into a reality. Whether you're looking to escape to the countryside, relax by the coast, or explore the vibrant cities of the UK, a holiday let property can offer a welcome retreat for guests and a profitable investment for you. So why not take the first step towards your holiday let adventure today?

The Insider @ Houst

The Insider @ Houst

The Insider team at Houst is dedicated to providing up-to-date and relevant information on short-term rentals. If you have hosting inquiries, please write to us at expert@houst.com. For guest inquiries, reach out at guest@houst.com. We are here to help you navigate the world of short lets and look forward to assisting you with your needs.

The Insider @ Houst

The Insider @ Houst

The Insider team at Houst is dedicated to providing up-to-date and relevant information on short-term rentals. If you have hosting inquiries, please write to us at expert@houst.com. For guest inquiries, reach out at guest@houst.com. We are here to help you navigate the world of short lets and look forward to assisting you with your needs.

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