At a glance

  • Holiday homes for rent cannot be purchased with a normal residential mortgage. Instead, you’ll need to obtain either a buy-to-let or specialised holiday let mortgage.
  • Interest rates are likely to be slightly higher than for ordinary residential mortgages and you will need a bigger deposit too.
  • Affordability checks are likely to be tighter and require convincing supporting evidence about your ability to take on a ‘second’ mortgage.

Do I need a special mortgage for a holiday let?

First off, a holiday property cannot be purchased or remortgaged with a normal residential mortgage – even if you intend to live there yourself for long periods. Lenders might offer you a buy-to-let product but more likely you will have to obtain a specialist holiday let product. This is because of the increased risk that a ‘rental’ property represents to the lender. For example, how will the mortgage be paid if you struggle to find people who want to stay in your property? Will you accept all male or all female parties to book the property (together with the attendant risk of raucous hen nights and stag dos threatening to upset not only the neighbours but the local council too).

If you intend to use an existing second home as a holiday let then don’t be tempted to simply not tell your lender about the change in use. Mortgage companies have access to the internet too and they will be completely within their rights to demand full repayment of your residential mortgage when they find out you’ve been renting the property out to holidaymakers. In such circumstances, you might well also find your name is placed on an official fraud prevention blacklist – making applications for any form of finance in the future highly difficult – and leaves you liable to prosecution for fraud too.

Instead, be upfront and open with mortgage lenders from the outset. This means doing your homework on questions about how you intend to finance the out of season periods as well as your predicted clientele.  

 

What is the difference between a holiday let and buy-to-let?

Holiday let and buy-to-let mortgages are two completely separate products designed for different uses; Stephen Alger, Business Principal at our partner, Mortgage Advice Bureau, explains more in the video below:

 

Did you find this video useful? For help getting either a holiday let or buy-to-let mortgage, speak to a broker.

What kind of mortgages are available for holiday lets?

As holiday home mortgages are rather specialised, your choice may be a little limited in terms of lenders, but the good news is that there is still a reasonable selection of mortgage types for you to choose from, including fixed rate, discounted variable and variable. However, for the same reasons as outlined above, it’s likely that holiday home mortgages carry a slightly higher interest rate than a normal residential product.

As it’s very probable that your new holiday cottage is a ‘second’ home, you may find that you will be offered an ‘interest only’ mortgage, where you only pay the monthly interest on the loan with the capital balance being repayable when you sell the property or at the end of the term. For repayment mortgages, you may also find that the lender insists on a shorter term than the usual 25-30 years.

Typically, you’ll also need to have a larger deposit than for a residential mortgage. This tends to be around 25% of the purchase price as a minimum.

 

What if my holiday home is overseas?

Foreign holiday home purchases can be far more complex. The type and availability of rental mortgage products depend heavily on the country you are buying in. In terms of providers, it is likely to be very hard to find a UK based lender who will advance you a mortgage on an overseas property – however, if your lender has branches in the country you intend to buy in then it may be possible to arrange finance through these. In most cases though, you’ll need a bank or financial organisation based in the country required.

Foreign lenders may well have different requirements than their UK counterparts, as well as insisting that prepurchase checks, such as valuation, or legal processes be carried out by agents in their home country.

 

Can I get a mortgage for a mobile home?

Sadly, no. Even where the mobile home is in permanent residence on a site, you will not be able to get a mortgage for this type of property. However, a lender may be able to arrange a secured or unsecured loan to finance your purchase, providing you and the mobile home meet their lending criteria.

 

What else do I need to think about before buying a holiday property to rent out?

As holiday cottages are often ‘second’ homes in the eyes of mortgage lenders, you should be prepared for affordability checks to be much stricter. If you are still paying a mortgage on your existing property then the lender will want to see convincing evidence that you can comfortably afford payments on both. While you may well intend to rent the property out (either privately or through a holiday cottage company) you must anticipate that there will be periods where the holiday property is vacant and not generating any money. You must be able to demonstrate how you will cope with repayments during these periods.

Insurance will also be a necessity: both for the buildings and contents. Again, with the new property being rented out insurers will look at these are higher risks so premiums can be higher than for your ordinary home. In these circumstances it’s therefore wise to shop around to get the best deal – and again, be honest. Insurers will certainly carry out checks in the event of any claim and are within their rights to void the policy if you have not declared the fact that the property is a holiday let.

Pros and cons of holiday let mortgages

  • A reasonable choice of mortgage types available, including interest only or capital repayment.
  • There are fewer holiday let mortgages than residential mortgage products to choose from.
  • Due to this, and the fact these tend to be more risky than standard mortgages, interest rates tend to be slightly higher and affordability checks will be more stringent.
  • You must be able to prove you can comfortably afford to pay the mortgage on your holiday home even if it is not generating any income from holidaymakers.
Seasonal Banner Seasonal Banner

What are the tax implications of a holiday let?

Any profit you make from the holiday let will be classed as income, which must be declared to HMRC and will be taxed at your applicable income tax rate. As it will likely be a second property, you’ll be expected to pay a higher rate of stamp duty as well. Find out how much stamp duty you could be charged. The exception to this is if you buy any property that can move (such as a caravan or boat) for your holiday let, which will be exempt from stamp duty.
 
However, though there are some drawbacks, there are various tax advantages to consider as well, and those who class their property as a furnished holiday let will often find it far more tax-efficient than if they were to have a straightforward buy-to-let property.
 
For starters, holiday lets that are classed as businesses will pay business rates instead of council tax, and it’s possible to claim Small Business Rate Relief of up to 100%. Holiday lets can also offset some of their operating costs and expenses against pre-tax profits, such as cleaning fees or buying new furniture or equipment for the property, and even mortgage interest (unlike with residential letting). Then, if you’re looking to sell, you’ll be subject to a maximum Capital Gains Tax rate of 24%, compared to 28% if you were to sell a buy-to-let.
 
Just bear in mind that, in order to qualify as a holiday let for tax purposes, the property must be in the UK or European Economic Area (EEA), fully furnished, and must be available for let at least 210 days of the year. It must also be commercially let – i.e., not let free to friends or family members – for at least 105 days each year.
Those considering setting up a holiday let business should consult a tax specialist to be certain of their tax arrangements.

What’s the best way for me to find a holiday let mortgage?

Although you can approach individual banks and building societies, this can be a lengthy and time-consuming process. Instead, it's a good idea to use the services of a reputable mortgage broker who will have the specialist knowledge and contacts to find you the best holiday let mortgages available. A mortgage broker can pull together the top deals and present you with a number of financing options to choose from.

 

Should I speak to a mortgage broker?

Mortgage brokers remove a lot of the paperwork and hassle of getting a mortgage, as well as helping you access exclusive products and rates that aren’t available to the public. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice.

 

Speak to an award-winning mortgage broker today:

 

MAB is the preferred mortgage broker of Moneyfactscompare.co.uk

 

Mortgage Advice Bureau logo

Get friendly, expert advice free of charge as a visitor of Moneyfactscompare.co.uk.

Mortgage Advice Bureau have 1,600 UK advisers with 200 awards between them.

Speak to an award-winning mortgage broker today.

Call 0808 149 9177 or request a callback

Mortgage Advice Bureau offers fee free mortgage advice for Moneyfacts visitors that call on 0808 149 9177. If you contact Mortgage Advice Bureau outside of these channels you may incur a fee of up to 1%. Lines are open Monday to Friday 8am to 8pm and Saturday 9am to 1pm excluding bank holidays. Calls may be recorded.

Your home may be repossessed if you do not keep up repayments on your mortgage.

 

 

Receive the latest news, straight to your inbox

All of our newsletters are available free by email to all Moneyfactscompare.co.uk users.

Send me Weekend Moneyfactscompare, Savers Friend, and Companies Friend.

Moneyfactscompare.co.uk guides

View all mortgage guides
guides icon
5 steps to becoming a buy-to-let landlord

If you already have a mortgage on your property but wish to convert it to buy-to-let, it's important to speak to your mortgage lender. Read on to find out more.

If you already have a mortgage on your property but wish to convert it to buy-to-let, it's important to speak to your mortgage lender. Read on to find out more.

Read More
guides icon
Tax on buy-to-let property and rental income

For many, property has a unique physical appeal that shares and investment funds just can't match. But the Government has been clamping down on this form of investment as it looks to control the housing market. The tax position of buy-to-let investing is therefore changing.

The Government has been clamping down on BTL investment as it looks to control the housing market. The tax position of BTL investing is therefore changing.

Read More
guides icon
Overseas Mortgages Explained

You must get an ‘overseas mortgage’ to purchase a house abroad – normally from a lender in the country you want to purchase in.

You must get an ‘overseas mortgage’ to purchase a house abroad – normally from a lender in the country you want to purchase in.

Read More
guides icon
Mortgages for a property of unusual construction

Not all homes are of the bricks and mortar variety. If you’ve set your heart on a new home that’s just a little (or a lot) out of the ordinary, you may need a special type of mortgage.

If you’ve set your heart on a new home that’s just a little (or a lot) out of the ordinary, you may need a special type of mortgage.

Read More

Ask us anything

Latest mortgage news

news icon
Moneyfacts pick of the week

13th February 2025

The Moneyfacts Pick of the Week showcases the best of the latest products or rate changes to hit the consumer finance market.

This week's selection includes balance transfer credit cards from HSBC and MBNA Limited, as well as recently reduce buy-to-let mortgage rates.

Read More
news icon
The best UK residential mortgage rates this week

12th February 2025

Each week the Moneyfactscompare.co.uk content team round up the very best mortgage rates available in the UK. Compare and apply today.

Fixed rates remain mostly stagnant following last week’s base rate cut, while product choice for first-time buyers rises.

Read More
news icon
Availability for 95% LTV mortgages reaches near five-year high

11th February 2025

The number of mortgages catering up to 95% LTV has hit its highest point since March 2020. Find out more.

The number of mortgages catering up to 95% LTV has hit its highest point since March 2020. Find out more.

Read More
news icon
Bank of England cuts base rate to 4.50% - what does this mean for your mortgage and savings?

6th February 2025

Borrowers were left disappointed after the previous base rate reduction preceded rising mortgage rates.

Borrowers were left disappointed after the previous base rate reduction preceded rising mortgage rates.

Read More
news icon
Best finance products and providers crowned in Moneyfactscompare.co.uk Awards 2025

6th February 2025

Hundreds of thousands of people took part in our consumer awards last year. After combining their feedback with our expert in-house analysis, discover the finance products and providers voted best in class at the Moneyfactscompare.co.uk Awards 2025:

Hundreds of thousands of people took part in our consumer survey last year – and the results are finally here!

Read More
news icon
Could looser lending rules help first-time buyers or pose more risk?

29th January 2025

With talks of relaxing mortgage lending rules, could this help first-time buyers get on the property ladder? See more on how lenders are supporting first-time buyers.

With talks of relaxing mortgage lending rules, could this help first-time buyers get on the property ladder?

Read More
news icon
Gap narrows between two- and five-year fixed mortgage rates

13th January 2025

Mortgage rates dropped in the month to January, with the margin between the average two- and five-year fixed rates falling to its lowest level in two years.

The margin between the average two- and five-year fixed rates is now at its lowest level in two years.

Read More
news icon
Bank of England base rate remains at 4.75% in final vote of 2024

19th December 2024

Disappointment for borrowers eagerly awaiting another cut after mortgage rates fell less than many hoped this year.

Disappointment for borrowers eagerly awaiting another cut after mortgage rates fell less than many hoped this year.

Read More

Moneyfactscompare.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfactscompare.co.uk will always be from news@moneyfacts-news.co.uk. Be ScamSmart.

Moneyfactscompare.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfactscompare.co.uk will always be from news@moneyfacts-news.co.uk. Be ScamSmart.