Holiday let mortgages

If you’ve looked into the price of holidays lately, you’ll know that the cost of heading abroad is on the rise. Once flights, transfers, insurance, hotels and eating out are all factored in, a holiday abroad is out of reach for a lot of people. That’s why a growing number of people are focusing their attention on getaways closer to home, which is where holiday lets come in. Owning a holiday home that pays for itself – and even generates strong returns – is a dream for many property investors. Holiday lets have become a popular way to earn seasonal income, whilst also enjoying your own personal home-away-from-home. But, if you want to buy a holiday let, you need to get a very specific type of mortgage.

Whether you’re taking your first step into the holiday let sector or you’re expanding an established portfolio, Everest Mortgages is here to help you secure the right holiday let mortgage.

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Everything you need to know about holiday let mortgages

A holiday let is a property that’s rented out to guests on a short-term basis, giving them somewhere to stay for long weekends, longer family holidays, romantic breaks and seasonal stays. Ranging from cottages by the coast and countryside cabins, to modern apartments in busy cities, holiday lets provide an alternative to hotels, B&Bs and hostels. As holiday lets have tenancy lengths that are much shorter and income is more seasonal, you can’t simply get a traditional buy-to-let mortgage.

If you want to buy a holiday home and rent it out, you’ll need to look at holiday let mortgages. Whereas other mortgages are designed for personal use or for long-term tenants, holiday let mortgages are designed for a property that will be used as a short-term rental. These mortgages take into account the unique nature of short-term rental income, which can fluctuate throughout the year, depending on the season.

How do holiday let mortgages work?

Holiday let mortgages are a type of buy-to-let mortgage, but they’re not the same as those you would use for a residential property. The main difference is the criteria lenders use to assess you, which includes:

Average weekly rental income across low, mid and high seasons
Tourism demand in the area
Your financial stability and personal income
Your credit report, with lenders favouring buyers with good credit scores
The condition of the property and furnishing

Most lenders require a minimum deposit of 25%, and interest rates tend to be higher than standard residential mortgages due to the increased risk associated with seasonal bookings.

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Who are holiday let mortgages best for?

Investors looking for higher seasonal income

You can usually rent a holiday let out for more during peak periods, making income potential stronger than many standard buy-to-let properties.

Individuals wanting a personal holiday home

Owning a holiday home means you can use the property yourself when it’s not booked by others, giving you a home-away-from-home, without accommodation costs.

Portfolio landlords diversifying their rental strategy

Holiday lets are rented out on a short-term basis, helping you to diversify your income streams and take advantage of opportunities in locations that are popular with tourists.

First time property investors with strong finances

Some lenders offer holiday let mortgages to first time landlords, as long as affordability is strong and the property has strong rental potential.

The pros and cons of investing in holiday lets

There are a lot of advantages to investing in a holiday let, which is why it’s a route many investors and landlords take.

Higher potential income

The nightly and weekly rates of holiday homes tend to be higher than standard rentals, especially during school holidays and peak tourist seasons.

Personal use

You can stay in the property yourself when it’s not booked by holidaymakers, which is ideal if you fancy a few days away from home at the last minute.

Growing staycation demand

Staycations continue to rise in popularity in the UK, boosting occupancy rates in many parts of the country.

Of course, there are a handful of downsides to consider. One of which is seasonal fluctuations, and it’s something a lot of holidays let owners face. Depending on location and target market, you’re likely to find that rental income is higher in the summer, and then drops in the winter. This means you need a financial buffer to stay on top of mortgage payments.

You’re also likely to find that, as holiday let lending is more specialist, there are fewer lenders to choose from compared to standard buy-to-let mortgages. This is why it’s important to work with a mortgage broker, such as Everest Mortgages.

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