Holiday let mortgages
From sunshine to side income - here's how a holiday let mortgage could finance your place in the sun.
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What is a holiday let mortgage?
Owning a holiday home in the UK might sound like a dream - but with a holiday let mortgage, it could be closer to reality than you think. Whether you're thinking of a cosy cottage in the Lake District or a beachside retreat in Cornwall, renting it out to guests when you're not using it can help cover the costs.
Holiday let mortgages are different from standard buy-to-let mortgages, which are used for long-term rentals with tenants under assured shorthold tenancy (AST) agreements. Instead, they're designed specifically for properties that are rented out to holidaymakers on a short-term basis.
How do holiday let mortgages work?
Lenders offering holiday let mortgages typically assess your affordability based on projected rental income during peak and off-peak seasons, rather than your salary alone. If you're buying a cottage in Devon that rents for £900 a week in summer and £450 in winter, they'll look at the annual total.
Unlike second home mortgages (which assume you'll live in the property when not renting it), holiday let mortgages come with conditions: you'll need to furnish the home, manage guest stays, and often prove it's a viable business venture.
What do lenders look for?
Lenders have specific criteria when it comes to holiday let mortgages, and being prepared can save you time and stress.
Property type and location: Lenders want to see that your property is somewhere with strong demand for short stays - think national parks, seaside towns, or tourist-friendly cities. A studio flat in a business district probably won't qualify as well.
Rental income projections: Most lenders require a letter or report from a local holiday letting agent showing expected earnings. They'll also want the property to generate 125–145% of the monthly mortgage payment in rent during the year.
Your financial background: Lenders will still look at your credit score, income, how much deposit you have, and any outstanding debts. Many will have a maximum LTV for this type of mortgage, generally 75% - meaning you may need to provide a deposit of at least 25%.
Benefits and risks of holiday lets
Like any investment, holiday lets come with sunny upsides and a few cloudy considerations. Here's what to consider before taking the plunge:
The bright side of holiday homes
Holiday lets can be a great investment if you buy in the right area. You can enjoy the property yourself when it's not booked, and rental income can be significantly higher than traditional buy-to-lets, especially in the summer months.
There are also tax advantages - if the property qualifies as a furnished holiday let (FHL), you could benefit from capital allowances, claim mortgage interest as an expense, and even reduce your capital gains tax when selling.
Rainy days and reality checks
Holiday lets can be seasonal, so income might dip in winter. You'll also need to manage bookings, cleaning, maintenance, and guest communication - or pay a management company to do it for you. Insurance costs are often higher, and empty weeks mean lost income.
Imagine your Cornish cottage rents for £1,200 a week in July and August, but sits empty in January. If bookings fall short or repair bills pile up, you'll still need to make your mortgage payments, so it's vital to have a backup plan or savings cushion.
Summing up
A holiday let mortgage can turn a dream location into both a retreat and a source of income. While there's more to manage than a standard rental, the potential rewards - both financial and personal - are well worth it for many.
Do your homework, choose the right property, and make sure the numbers stack up before jumping in. A little prep goes a long way in this market.
Frequently Asked Questions
Can I live in my holiday let property?
Yes, you can stay in your holiday home for personal use, but there are limits. To qualify as a furnished holiday let and access tax benefits, the property must be available to rent for at least 210 days per year and actually let for 105 days. If you use the property too much for own holidays, it could impact your eligibility for the right mortgage. Be mindful of the lending criteria when making your mortgage application.
What deposit do I need for a holiday let mortgage?
Most mortgage lenders require a deposit of 25–30% for a holiday let mortgage, but this can vary based on the purchase price and location. The size of your deposit can also influence the interest rate and the overall cost of your mortgage. A larger deposit can make you more attractive to lenders and might improve your chances of securing the right mortgage.
Do I need a special type of insurance?
Yes, you will need specialist holiday let insurance as standard home insurance will not cover holiday lets. This insurance should cover public liability, accidental damage by guests, and protection during periods when the property is unoccupied. If you rent your rental property through platforms like Airbnb, some insurers offer cover tailored specifically for those seasonal rental income models.
Can I get a holiday let mortgage through my usual bank?
Some banks offer mortgages for holiday accommodation, but many don't. It is often easier to go through a mortgage broker who specialises in holiday lets. A broker can help you find lenders that understand seasonal rental income and are familiar with the specific requirements for short-term letting.
What happens if I can't find guests or income is lower than expected?
If your rental income drops, you'll still be responsible for your monthly payments on the mortgage product. Many owners set aside a portion of their peak-season income to cover slower months. If you're struggling with income fluctuations, it's a good idea to create an emergency fund to manage repayment mortgage obligations.
Can I use Airbnb or similar to rent out my property?
Yes, you can use various platforms to rent out your holiday home, as long as your mortgage allows short-term rentals. If you own more than one holiday rental, it can be a good idea to let a management company handle your bookings and upkeep. It may also be worthwhile to set up a limited company to streamline your finances and avoid impacting your personal income tax.
About the author
Lawrence Howlett
Lawrence Howlett brings a results-driven mindset to his writing, shaped by over a decade of experience across finance, legal, and energy sectors. As the founder of Moneysavingadvisors, he’s built a reputation for turning complex financial concepts into clear, actionable insights for consumers. His writing stands out for its clarity, structure, and focus on delivering value.
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