Holiday Let Mortgages - Everything You Need To Know

One of the biggest parts of buying a holiday home is securing a holiday let mortgage which can differ substantially to those for buy-to-lets and residential properties. Much like any mortgage, holiday let mortgages have various conditions attached to them, so it is vital that you know exactly what the terms are before agreeing to anything. 

Types of mortgages available

Just like the residential and buy-to-let mortgage market, there are several types of mortgages available for holiday homes. These include fixed-rate mortgages, discounted rate mortgages, and flexible rate mortgages. There are lots of variables to consider when choosing which mortgage is right for you and each provider will have different rules, so make sure you do your research before committing to anything.

Deposits and income

The size of the deposit you’ll need to secure your property will often depend on the mortgage product chosen, but it is likely to be a minimum of 25%. As ever, the larger the deposit, the better the terms of the mortgage. When applying for a mortgage, you’ll also need to have an idea of the rental income you’re hoping to earn from your holiday let. A rule of thumb to keep in mind is that usually you need to be able to make a gross pre-tax income of between 125%-145% of the monthly mortgage repayments.

The support letter

Another step to securing a mortgage involves a mortgage support letter, also known as a letter of explanation. This is usually requested by a mortgage lender to get extra information from the borrower to be able to complete the application process. Here, it is essential you have support from a reputable holiday letting agent who can provide you with a credible income projection and the lender can see the repayments can be met. At Sykes, we offer a free service to help with the creation of this letter. 

Tax relief for holiday lets

While interest rates for holiday let mortgages are typically higher than buy-to-lets, holiday let owners can claim on the wide range of tax reliefs which are no longer available to buy-to-let landlords. If your holiday cottage is run as a Furnished Holiday Let, HMRC will allow operating costs and expenses like utility bills and costs of maintaining the holiday let, including cleaning and gardening to be deducted from your income, meaning the amount of tax paid on any profit will be lower.

Owners are also eligible to capital allowances for furniture, equipment, and other interior fittings. Claiming capital allowances on your property purchase can significantly reduce the tax payable on your holiday let profits and the return on your investment too.  Finally, the profits from a holiday let can also be counted as earnings for pension purposes and when you sell the property, you can claim capital gains tax relief.

The fees attached to a holiday let mortgage

There are a few other fees to consider when purchasing a holiday let, including arrangement fees (also known as a booking or product fee), survey costs and legal costs. There will also be an additional stamp duty cost that comes when buying any property and the rate will depend on your location (England, Scotland, Wales, or Ireland), the property price, and whether it’s your second property or not. Therefore, make sure you factor all these fees into your holiday home budget and how much you’re willing to put into your initial deposit.

* Bev Dumbleton is Chief Operating Officer at Sykes Holiday Cottages *

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