By the end of this guide, you will be able to:
- Understand the differences between holiday let mortgages and standard buy-to-let mortgages.
- Advise clients on the financial benefits and challenges of holiday let investments.
- Identify key lender criteria for holiday let mortgages.
- Recognise when a holiday let mortgage is suitable and when it is not.
What is a holiday let mortgage?
A holiday let mortgage is a specialist buy-to-let mortgage designed for properties rented out on a short-term basis to holidaymakers. Unlike traditional buy-to-let mortgages, where tenants sign long-term contracts, holiday lets are rented out for shorter stays, often through platforms like Airbnb, Booking.com, or direct rental agreements.
Lenders assess holiday let mortgages differently from standard buy-to-let mortgages, considering factors such as projected rental income, occupancy rates, and seasonality risks.
Why landlords invest in holiday lets
Holiday let properties offer several financial and strategic benefits:
- Higher rental income – Short-term lets often generate higher weekly rental rates compared to standard buy-to-let properties.
- Tax advantages – Furnished holiday lets qualify for tax benefits, including mortgage interest relief and capital allowances.
- Personal use – Landlords can use the property themselves when it is not rented out.
- Growing market demand – The staycation trend has boosted demand for UK-based holiday rentals, reducing the risk of void periods.
Potential downsides of holiday let investments
Despite the benefits, holiday lets come with added responsibilities and risks:
- Seasonal income fluctuations – Holiday lets may experience reduced occupancy during off-peak seasons.
- More intensive management – Managing bookings, guest check-ins, and maintenance requires more involvement than a standard buy-to-let.
- Stricter lender criteria – Fewer lenders offer holiday let mortgages, and affordability assessments can be more complex.
- Higher maintenance costs – Frequent guest turnover can lead to increased wear and tear, requiring more frequent repairs and cleaning.
Key considerations for brokers
When advising clients on holiday let mortgages, brokers should consider the following:
- Location and demand – High-demand tourist areas will generate more bookings and higher occupancy rates.
- Lender criteria – Many lenders require a minimum personal income, higher deposits, or specific experience in property letting.
- Affordability assessments – Lenders may base affordability on projected holiday rental income rather than standard rental yields.
- Tax implications – Brokers should ensure clients understand the tax treatment of furnished holiday lets.
- Property management – Clients should consider whether they will self-manage or use a holiday let management company.
When is a holiday let mortgage suitable?
- For properties in high-demand tourist locations – Seaside towns, countryside retreats, and city-centre properties tend to perform well.
- For landlords seeking high yields – Short-term lets can generate significantly more income than traditional long-term lets.
- For investors who can handle property management – Holiday lets require active management and regular maintenance.
- For clients with a flexible lending profile – Many lenders have stricter requirements for holiday let borrowers.
When is a holiday let mortgage not suitable?
- For areas with low tourism demand – Properties in areas with low visitor numbers may struggle with occupancy rates.
- For landlords unprepared for management challenges – Holiday lets require frequent guest turnover, cleaning, and marketing.
- For those relying on steady monthly income – Unlike standard buy-to-let properties, holiday let income fluctuates throughout the year.
- For first-time landlords – Some lenders prefer borrowers with prior buy-to-let experience before offering holiday let mortgages.
Conclusion
Holiday let investments can be highly lucrative, but they require careful planning, active management, and a thorough understanding of lender requirements. As a mortgage broker, ensuring your clients understand the financial and operational aspects of holiday lets is crucial to helping them make informed investment decisions.
At NBTLAE, we are dedicated to equipping brokers with the knowledge and insights needed to support their clients in the evolving buy-to-let market. Join us at the National Buy to Let Adviser Event to stay ahead of industry trends.
