Considering buying a holiday cottage to let out? In this guest-authored article, Paul Blaking, Direct Mortgage Manager, from Suffolk Building Society, outlines what you need to know, including the ins and outs of securing a holiday let mortgage to help you make the most of your investment.
More people are choosing to holiday in the UK, so holiday cottages are in high demand. Buying a holiday let can be a good way to earn money, but getting a mortgage for it is different from a normal home or buy to let loan. You’ll need a holiday let mortgage. Knowing how these work can help you when choosing your dream property.
What is a holiday let mortgage?
A holiday let mortgage is for homes you rent out to holidaymakers for short stays. This is not the same as a buy to let mortgage, which is for long-term rentals.
To qualify, the home must be available to rent for at least 210 days a year and actually rented for at least 105 days. Lenders will look at how much money the home could make from rent, not just your own income.
Some holiday let mortgages are also for UK citizens who live abroad. These allow them to use the home for visits and rent it out when they’re not using it.
How is it different from buy to let?
Buy to let homes are rented for longer periods, often six months or more. They give regular monthly income. Holiday lets make more money in busy times and less during quiet times.
Lenders assess rental income in different ways. For buy to let, they look at the monthly rent. For holiday lets, they look at how much it can earn across the year.
Holiday lets that meet certain rules can get tax benefits, like claiming back some costs. These benefits don’t apply to regular buy to let homes.
Holiday let mortgages often need a bigger deposit – usually 25% to 35% of the price. Interest rates may also be higher because income from holiday homes can go up and down.
What do lenders look for?
Each lender is different, but most want to know that your rent will easily cover the mortgage. They might also ask that you earn at least £25,000 to £40,000 a year, so you can pay the mortgage during quiet seasons.
Lenders are more likely to lend on homes in places tourists visit, like beaches, the countryside, or cities. The home should be in good shape and have the furniture and home comforts guests expect.
Some lenders limit how often you can stay in the property. For example, some allow up to 60 days a year for personal use. Lenders may also set age limits and different loan lengths.
How do lenders check affordability?
To work out how much rent the home could make, lenders often ask for a letter from a holiday letting agency. This shows income for different seasons. They average it out and multiply by 30 weeks, or 35 weeks if the home has been rented for more than two years. Most lenders will take a similar approach.
If you pay basic rate tax, your rent must cover 125% of the mortgage payments. If you pay higher tax, that goes up to 145%. Lenders also test whether you could still afford the loan if interest rates go up.
What other costs are there?
Along with the mortgage and deposit, there are other costs. You’ll need to pay Stamp Duty Land Tax (SDLT), with an extra charge if you will own more than one property.
You’ll need holiday let insurance, which covers things like lost rent, guest damage, and public liability. You also need money for repairs and new furniture to keep the home nice for guests.
If you hire a letting agent, they will take a fee from your rental income.
Are there any tax benefits?
If your home meets the rules for a Furnished Holiday Let (FHL), you may get tax relief. This means you can claim money back on furniture and mortgage interest.
To qualify, your home must be available for 210 days and let for at least 105 days a year. You also can’t rent it to the same guest for more than 31 days too often.
From April 2025, higher-rate taxpayers will get a 20% tax credit on mortgage interest. You can find full details on the UK government website.
Finding the right lender
Not all banks offer holiday let mortgages, so it’s a good idea to check with a lender specialising in niche mortgages, like Suffolk Building Society. While some high street banks do offer them, their rules may be different.
When comparing lenders, look at interest rates, loan sizes, and how they check rental income. A mortgage broker who knows the holiday let market can help too.
How to apply
Start by researching lenders and checking their requirements. Make sure you and the property meet their rules. Your chosen lender will be able to help you with this. You’ll also need to show things like proof of income, bank statements, and rental income estimates.
If the lender agrees, they’ll do a valuation of the property and review your application. If approved, you can move ahead with buying the home and get ready for your first guests.
Explore More Holiday Letting Tips
Holiday lets can be fun and bring in money, but they take work. You’ll need to manage the home, keep it clean and in good shape, and handle bookings – or pay someone to do it.
If the home is in a good area and well-managed, it can earn good income, bring tax benefits, and grow in value. With the right mortgage and effort, it can be a great investment.
Ready to take the next step with your holiday rental journey? Check out more of our expert guides:
- How to price a holiday let: 7 key considerations – learn the factors that go into pricing your holiday let to attract bookings while maximising profits.
- Discover Managing a holiday let: A beginner’s guide – get tips on how to effectively manage your holiday let, from maintenance to guest communication.
- Discover Our Luxury Suffolk Cottages – perfect inspiration if you’re eyeing property in this beautiful part of the UK.
If you’re seriously considering buying a holiday cottage to rent out, it’s worth speaking with a broker or lender who specialises in niche mortgages. With UK staycations on the rise, now could be the perfect time to enter the holiday let market.
Written by Suffolk Building Society
About Suffolk Building Society
Trusted since 1849, Suffolk Building Society provides a safe home for savers and safe homes for its communities. The Society offers a range of holiday let mortgages, details of which can be found on its websites.
