Holiday let mortgages: an owner's guide

A holiday let mortgage funds a property let to short-stay guests rather than to a tenant on a long tenancy. Lenders assess it on projected seasonal income rather than a single monthly rent, usually by blending low, mid and high season weekly rates and assuming the property is only occupied for part of the year. Expect a deposit of at least 25 per cent, often 30 or 35 per cent, a smaller lender panel than standard buy-to-let, and rules limiting how much you can use the place yourself.

A normal buy-to-let mortgage is written on the assumption of an assured shorthold tenancy or its equivalent. Letting a property on a short-term basis breaches those terms, and lenders do check. Listings are public, so a holiday let running on a standard buy-to-let product is not a clever workaround, it is a breach that can trigger a demand for repayment.

Holiday let products are priced and underwritten differently because the income is lumpier, the wear is heavier and the resale market is narrower. Fewer lenders offer them, and several of those that do are building societies with a regional focus, so the right lender may depend on where the property is.

Instead of one rent figure, the lender wants three: a low season weekly rate, a mid or shoulder season rate and a high season rate. These usually come from a specialist holiday let valuation, from a local managing agent's letter, or from the actual booking history if the property already trades.

The lender then converts those into an annual figure. The common approaches are to average the three rates and apply an assumed number of let weeks, or to apply a specific number of weeks to each season. Either way the assumption is well below 52 weeks, because nobody fills a holiday cottage all year.

Here is how that looks in practice. Assume a cottage with these agent projections:

• Low season, 450 pounds a week
• Mid season, 750 pounds a week
• High season, 1,200 pounds a week

The simple average is 800 pounds a week. If the lender assumes 30 let weeks, the assessed annual income is 24,000 pounds, or 2,000 pounds a month. Note how conservative that is against a full-occupancy fantasy of over 40,000 pounds.

The interest cover ratio then applies as it does on any buy-to-let, commonly 125 per cent for basic-rate taxpayers and 145 per cent for higher-rate taxpayers, at a stressed rate that is typically higher than the pay rate. Take an illustrative stress rate of 5.5 per cent and a higher-rate applicant. The assessed 24,000 pounds divided by 1.45 leaves 16,551 pounds of interest capacity, and dividing that by 5.5 per cent gives a maximum loan of about 300,900 pounds, subject to the loan to value cap.

On a 400,000 pound cottage at 70 per cent loan to value the loan would be 280,000 pounds, so in this example the deposit, not the income, is the binding constraint. Reverse the seasonal figures downwards and the income test bites instead. Get the agent projection before you offer, because it decides the case.

Plan for 25 per cent as an absolute minimum and 30 to 35 per cent as a realistic working figure. Lenders commonly also want:

• A minimum personal income, often around 25,000 pounds and sometimes higher for holiday lets
• That you already own your own home
• A minimum property value, which tends to be higher than on standard buy-to-let
• Evidence that the property is suitable for holiday letting and has a genuine local market

Personal use is the criterion people most often miss. Lenders generally allow you to use the property yourself, but cap it, with limits of somewhere between 60 and 90 days a year being common. Exceed the cap and you are outside the product terms. You also cannot use it as your main residence, and you usually cannot mix in long assured shorthold tenancies without consent.

Short-term letting has been regulated much more tightly in recent years, and the rules differ across the UK.

In Scotland, short-term lets require a licence from the local authority, and some councils operate short-term let control areas where a change of use to short-term letting also needs planning permission. In Wales, statutory licensing for visitor accommodation has been taken forward alongside changes to council tax premiums on second homes and holiday lets. In England, a registration scheme for short-term lets has been legislated for, with detail and timing that has moved more than once, and some areas have long-standing local rules, notably the 90-night limit on short-term letting of a whole home in Greater London.

The safe approach is to check the current position with the specific local authority and on GOV.UK before you buy, because a property you cannot lawfully let short-term is a very expensive mistake, and lenders will expect the position to be resolved.

This is the biggest change of the last few years and it is often still described wrongly online.

The Furnished Holiday Lettings tax regime was abolished from April 2025. Holiday lets are now taxed broadly like any other property business. In practical terms that means the old FHL advantages no longer apply: full deduction of finance costs, capital allowances on furniture and equipment, treating profits as relevant earnings for pension purposes, and access to certain capital gains tax reliefs on disposal.

Individual landlords now get the same basic-rate tax credit for mortgage interest that applies across residential property letting, rather than deducting interest from profit. That materially changes the after-tax return on a highly geared holiday let, particularly for higher-rate taxpayers. Companies can still deduct finance costs, which is one reason some owners look at corporate ownership, though moving an existing property into a company has its own tax cost.

Do not plan around any of this from a blog post. Take advice from an accountant who deals with property, ideally before you exchange.

A holiday let is a hospitality business. Budget for changeover cleaning between every stay, laundry, consumables, utilities and council tax or business rates, listing platform commission or a managing agent taking a substantial share of gross bookings, higher maintenance from constant turnover, and specialist insurance that covers paying guests.

On the 24,000 pound assessed income above, it is entirely realistic for 40 to 50 per cent to disappear into running costs before any mortgage interest. Model that properly. A holiday let can outperform a standard let, but it does so on a gross number that flatters it.

If you are weighing up a coastal or rural purchase, use the MortgageMatch directory to find an FCA-authorised broker who works with holiday let lenders, several of which are regional building societies. Holiday let lending is usually unregulated, but the seasonal income assessment varies so much between lenders that specialist advice tends to pay for itself.