Can you get a mortgage on a holiday let?

Buying a holiday home you intend to rent out to guests can provide an additional source of income, but there is also a significant initial investment involved. That's where holiday let mortgages may come in. But can you get a mortgage on a holiday home? In this article, we provide a basic overview of the subject.

Please note that the content in this article is intended as a general guide only. It does not constitute financial advice.

What is a holiday let mortgage?

A holiday let mortgage is a type of mortgage that may be used when buying a property you intend to rent out to paying guests on a short-term basis. In practice, it is similar to other mortgages because it is usually a large loan offered over a long repayment period.

Holiday let mortgages can be assessed differently from standard residential or buy-to-let mortgages because the property may be used by short-term guests rather than residents or longer-term tenants. Depending on the lender, the criteria may take into account factors such as expected rental income, seasonal demand, occupancy expectations and the way the property will be used.

This means that a standard residential, second home or buy-to-let mortgage may not always be suitable if you intend to rent your property out to short-term guests. Some mortgage agreements may restrict this type of activity, require lender consent or include conditions around how the property can be used. If you already have a mortgage on the property, it is worth checking the terms before using it as a holiday let.

If you do not want to let your holiday home to guests and simply want a second home you can use as a holiday retreat, a different mortgage product may be more appropriate. This may be closer to a standard residential mortgage, but affordability and eligibility checks can still vary. The right option will depend on how you intend to use the property, your financial circumstances and the lender's criteria.

What affects holiday home mortgage rates?

In general, mortgage rates are based on factors such as the property's price, your deposit, the repayment period and affordability. However, with holiday let mortgages, more specific criteria may come into play:

• Location: the lender may assess the area for an idea of guest demand, risk and likely rental income.

• Loan to value (LTV): this is the amount of money a lender is willing to lend you compared to the property's value. The shortfall is what you must provide as a deposit. Holiday let mortgage providers may set different LTV limits, and the amount you can borrow will depend on the lender's criteria and your circumstances.

• Holiday let income: for holiday lets, lenders may assess projected or existing income because guest bookings can vary throughout the year. Where a buy-to-let may have a more regular monthly income, holiday lets can experience seasonal highs and lows.

• Affordability: your personal affordability is generally calculated based on income and outgoings. For a holiday let mortgage, the lender may look at projected or average rental income, as well as your own income and wider financial circumstances. The exact approach will depend on the lender.

If you're remortgaging an existing holiday let, you may have clearer evidence of income and affordability to support your application. New owners, on the other hand, may need to rely more heavily on projections and personal circumstances. Rates and criteria can vary, so it may be worth speaking to a qualified mortgage adviser.

Second home mortgage rules for holiday lets

If you are applying for a mortgage on a property you plan to let to guests, the lender may set conditions around how the property can be used. These conditions can vary between mortgage providers and products, so it is important to understand the terms before proceeding.

For example, lenders may have requirements or restrictions relating to:

• Whether the property can be used for short-term letting.

• Whether you can use the property yourself.

• How often the property can be let or occupied.

• Whether suitable insurance needs to be in place.

• Whether you need to tell the lender about any changes in use.

The exact rules will depend on the lender and the mortgage agreement. If you are unsure, speak to your mortgage provider or a qualified mortgage adviser before letting the property to guests.

Holiday let mortgages and insurance

Mortgage providers may require buildings insurance as a condition for offering any loan. Pikl is a specialist provider for holiday lets. Visit our holiday let insurance page or speak to the Pikl customer services team if you have any questions about cover.