What you need to know about owning a holiday let

When deciding whether to invest in a holiday let or buy-to-let, there are a few key things to consider. First, what are your goals? Are you aiming to generate a substantial income, or do you want a stable investment?

If you want to generate an income, holiday letting may be the better option, but if it's a stable investment you’re after, then buy-to-let is worth exploring further.

A holiday let mortgage is for those looking to borrow money to buy a property on a short-term letting basis for tourists and businesses. They’re an attractive option as more than 11,000 second homeowners in England have changed their properties into holiday lets since the start of the pandemic.

Holiday Let mortgages

Holiday let mortgages come with higher interest rates than standard buy-to-let mortgages, and you usually need a larger deposit (typically 25%).

Holiday let mortgage providers often insist on certain conditions being met, such as minimum letting periods and restrictions on how the property can be used.

Furnished holiday rentals are treated differently when it comes to taxes as they are classed as a business. Tax relief on mortgage interests can be claimed, whereas on buy-to-let properties the amount is reduced. Speak to a tax specialist for more information about tax relief.

The lending criteria for a holiday let is stricter than for a buy-to-let or residential mortgage, as lenders assess your personal income and expected income from the holiday property. Lenders will also assess your outgoings; this includes your mortgage repayments. They need to make sure you can afford the mortgage repayments throughout the year and during times when the property isn’t rented out.

Holiday lets and stamp duty

There are also additional costs that must be factored in, such as stamp duty. Stamp duty is based on tiers, for example if the portion of the property price is £0-£125,000 the stamp duty rate is 3%. If a portion of the property price is £250,001- £925,000, the stamp duty is 8%.

For more information about the stamp duty tiers click here.

Purchasing a holiday rental falls into the higher rates stamp duty criteria. You will have to pay an extra 3% of the property sales price. Higher rates stamp duty acts as a tax as opposed to the standard stamp duty tax which is applied based on tiers.

Speak to one of our local advisers about holiday let mortgages.

Note: There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.

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