Everything You Need to Know About Holiday Buy to Let Mortgages

18th May 2023

Are you considering investing in a holiday rental property?

Holiday Let mortgages explained

What are Holiday Let Mortgages?

A holiday buy to let mortgage is a type of mortgage specifically designed for those who wish to buy a property with the intention of renting it out as a holiday home. These mortgages are similar to regular buy to let mortgages, but they typically come with stricter lending criteria and higher interest rates.

How do Holiday Buy to Let Mortgages Work?

Holiday buy to let mortgages work in much the same way as regular buy to let mortgages. You borrow money from a lender to purchase a property, which you then rent out to holidaymakers and tourists. However, you’ll typically need to put down a larger deposit than you would a traditional buy to let mortgage and the interest rates may be higher too.

Holiday Buy to Let Criteria

The criteria for a holiday buy to let mortgage will vary depending on the lender you choose to go with. However, some common criteria include:


1. Minimum Deposit

You will typically be required to put down a larger deposit than you would for a regular mortgage. This usually starts at around 25% of the property’s value.


2. Property Location

The property will need to be located in a popular holiday destination to ensure a steady stream of bookings and rental income.


3. Rental Income

In line with this, lenders will typically require you to demonstrate that your holiday property will generate sufficient rental income to cover the mortgage repayments and other related costs, such as maintenance.


4. Financial Standing

As is the case when applying for most mortgages, you will need to demonstrate that you have a good credit score and a stable income to show that you can afford to keep up with the mortgage repayments.


5. Property Type

Some lenders may have restrictions on the type of property they will lend on, such as excluding apartments or properties that are not suitable for year-round occupancy and therefore will not generate income through the entirety of the year.


6. Property Management

Though this isn’t always the case, some lenders may require you to have a property management company in place to handle any bookings and general maintenance of the property to ensure its upkeep. 

It’s also worth noting that lenders may have additional criteria depending on the individual circumstances of the borrower and the property. It’s always best to speak to a mortgage advisor to understand the specific criteria for a holiday buy to let mortgage.

Things to consider when applying for a holiday buy let mortgage

As well as considering a lender's criteria, it’s also important to consider what other factors you should anticipate before applying for a holiday let mortgage.

Similarly to a lender’s criteria, you will need to ensure that the location of your holiday let is popular and will generate a steady stream of bookings throughout the year in order to generate enough rental income for your property to be profitable.

Additionally, you’ll also need to consider things like upfront costs and a maintenance budget to start your property up and have it remain running throughout the year. Some initial costs to remember include:

  • Your deposit
  • Legal fees
  • Stamp duty

It’s also important to remember that holiday buy to let properties are subject to different tax rules than traditional buy to let properties. To ensure you abide by any tax obligations, we would always recommend speaking to a tax advisor to get a better understanding of this.

Finally, you should also consider the current holiday let mortgage rates on the market. Just like you would for a standard buy to let or when looking at traditional mortgages for a house, finding the best rates can reduce your monthly payments over your mortgage term.

Benefits of Holiday Buy to Let Mortgages

Whilst there may be a lot of technical information to understand when it comes to holiday buy to let mortgages, Investing in a holiday rental property can offer several benefits.

  1. High Rental Yields: Holiday rentals can often generate high rental yields, particularly during peak seasons and when they are located in or near popular tourist areas.
  2. Personal Use: A major benefit for a lot of people is that you can use the holiday let property yourself for quick getaways when it is not being rented out.
  3. Capital Growth: Property values in popular holiday destinations tend to increase over time, offering the potential for positive capital growth.
  4. Diversification: If you’re looking to diversify your investment portfolio, Investing in a holiday rental property can help to showcase a range of properties.

Holiday Buy to Let Mortgages with Vernon Building Society

Holiday let mortgages can be a great way to invest in a holiday rental property. However, before you apply, it’s important to consider factors such as location, rental income, upfront costs, maintenance costs, and tax implications. By doing so, you can make an informed decision and ensure that your investment is right for you.

If you’d like to learn more about our holiday buy to let mortgages, you can visit our page here.