Holiday Let Mortgages Explained: A Complete Guide

Whether it’s a cosy cottage, beach house or countryside retreat, buying a holiday let can be an attractive investment for many.

However, financing a holiday let comes with its own lending criteria and requirements that set it apart from a standard residential mortgage.

In this article, we explain everything you need to know about holiday let mortgages, including how they work, what lenders look for when assessing applications and how to find a suitable mortgage for your property. Let’s begin.

What Is a Holiday Let Mortgage?

Unlike a standard residential mortgage, a holiday let mortgage is intended for properties that will be used as short-term holiday accommodation with the primary goal of generating rental income from paying guests.

As such, holiday lets can often include seaside cottages, countryside retreats or apartments in popular tourist destinations.

Some lenders may allow you to stay in the property yourself, however,  there are often restrictions on personal use. For example, a lender may limit your own stays to 90 days per year to ensure that the property remains available for holiday rentals and can therefore generate sufficient rental income.

How Do Holiday Let Mortgages Work?

When applying for a holiday let mortgage, lenders will want to establish an accurate estimate of how much rental income the property could generate throughout the year.

To calculate this, they will typically request a rental income projection from a holiday letting agent, estimating the property’s potential earnings during peak and off-peak seasons. Lenders then use these figures to assess whether the expected income meets their affordability requirements.

To demonstrate this, let’s take a look at how a holiday let mortgage could work in practice:

Using the example of a holiday cottage:

• Property purchase price: £300,000
• Deposit (25%): £75,000
• Mortgage (75% LTV): £225,000
• Illustrative interest rate: 5.50%
• Monthly interest-only payment: £1,031.25

To assess whether the property could support this mortgage, the lender may request a projection of its potential rental earnings. For example, a holiday letting agent might estimate:

In our example, the property is projected to generate roughly £37,400 in gross annual rental income, against the annual mortgage interest payments of £12,375.

However, while this forecast suggests that the property could generate sufficient income to cover the mortgage interest payments, it does not mean that the mortgage application would automatically be approved.

It’s important to note that lenders will apply their own affordability calculations, often testing rental income against a higher interest rate and requiring a minimum level of rental coverage. Additionally, they may assess your personal income, existing financial commitments and the property’s suitability before a final decision.

How Does Holiday Letting Differ From Traditional Buy-to-Let?

Although both can generate rental income, there are a few key differences in how the properties operate and how lenders will assess the mortgage applications.

As a general rule, holiday lets may generate a higher rental income, especially during busy tourist seasons, but bookings can be less predictable.

In comparison, a traditional buy-to-let property would generally provide a more consistent monthly rental income through long-term tenants, although landlords may still experience vacant periods.

How lenders assess affordability is another key difference. With a holiday let mortgage, lenders typically use projected rental income based on expected booking rates throughout the year.

While traditional buy-to-let lenders will assess affordability using the property’s expected monthly rental income, often applying an additional rental coverage calculation based on your own financial affordability to determine whether it can support the mortgage payments.

There are also differences in mortgage requirements, property management and running costs:

Ultimately, both mortgage options offer different opportunities, with neither necessarily being more profitable than the other. The suitability of each will depend on the property’s location, rental demand, operating costs and your investment goals.

What Are the Eligibility Requirements?

While each lender will have their own holiday let eligibility criteria, there are several factors that can influence whether your application is approved, including:

• Age: Most lenders require applicants to be a minimum of 18 or 21 years old, with some imposing a maximum age at the end of the mortgage term
• Personal income: Some lenders may require a minimum annual income, while others focus more heavily on the proposed property’s projected rental earnings
• Credit history: Lenders will review your credit report and existing financial commitments to assess your borrowing history and overall financial position
• Deposit: Holiday let mortgages typically require a deposit of around 25% or more, although the minimum deposit required will depend on the lender and property
• Rental income: Lenders typically require evidence of projected rental earnings, often provided by an external holiday letting agent
• Property suitability: The property’s location, condition and suitability for holiday letting can affect eligibility, with some lenders restricting certain property types
• Landlord experience: While some lenders accept first-time landlords, others prefer applicants who already own a residential property or have experience managing rental accommodation

Ultimately, each lender will have its own lending criteria, and meeting these requirements does not guarantee mortgage approval.

If you’re unsure whether you qualify, working with a whole-of-market broker can help you understand your eligibility, compare different lending criteria and explore suitable mortgage options.

How Much Deposit Do I Need for a Holiday Let?

The amount of deposit you need will always depend on the property’s value, the lender’s requirements and your financial position.

For many lenders, 25% is usually the minimum deposit requirement. However, it is important to note that contributing a larger deposit can improve your borrowing options. Some lenders may allow a minimum deposit of 20% of the purchase price but these lenders are typically more specialist with stricter lending criteria.

Increasing your deposit will decrease your total loan-to-value ratio (LTV), which could give you access to a wider selection of lenders and may allow you to access more competitive interest rates and favourable affordability assessments.

To show you how your deposit can affect your borrowing options, we’ve created an example comparing different deposit percentages when purchasing a £300,000 holiday let.

Ultimately, providing a larger deposit can offer several advantages when applying for a holiday let mortgage, including:

• More Competitive Interest Rates: A lower loan-to-value (LTV) may give you access to more favourable interest rates, reducing your overall borrowing costs.
• Easier Affordability Assessments: A smaller mortgage balance can reduce the rental income needed to satisfy a lender’s affordability and interest rate stress tests.
• Greater Lender Choice: Some lenders offer products at lower LTV thresholds, meaning a larger deposit could give you access to more mortgage options.
• Greater Flexibility with Property Types: Some lenders may require larger deposits for properties they consider higher risk, such as those in remote locations or with unusual or non-standard construction features.

Finally, it’s important to remember that your deposit is only one of the upfront costs to consider. You may also need to budget for Stamp Duty Land Tax, legal fees, valuation costs and mortgage arrangement fees.

How Much Can I Borrow for a Holiday Let?

Unlike a standard residential mortgage, borrowing for a holiday let mortgage is generally assessed using the property’s expected rental earnings rather than a multiple of your annual salary.

As such, lenders will use the property’s projected rental income, usually estimated by a holiday letting agency, taking into account seasonal demand and expected occupancy rates throughout the year.

Lenders may then apply an Interest Coverage Ratio (ICR), which measures how much of the mortgage’s interest payments the projected rental income can cover. This is usually assessed using a stress-test interest rate that is set by the lender.

To show you this in practice, here’s an example calculation:

• Mortgage amount: £300,000
• Stress-test interest rate: 6%
• Annual mortgage interest: £18,000 (£300,000 x 6%)
• ICR requirement: 125%
• Minimum annual rental income required: £22,500 (£18,000 x 125%)

In this example, the property would need to generate at least £22,500 in projected annual rental income to satisfy the lender’s ICR requirement.

If the lender instead required an ICR of 145%, the minimum projected annual rental income would increase to £26,100.

In addition to this, your borrowing amount will also be limited by the lender’s maximum LTV. Even if the property’s projected rental income supports a larger mortgage, you may still need to provide a higher deposit to meet the lender’s requirements.

What Affects Holiday Let Mortgage Rates?

As holiday lets are considered to be a specialist form of property investment, holiday let mortgage rates are typically higher than those available on standard residential mortgages.

However, as is true with all mortgage products, the interest rate that you are offered will always depend on your circumstances, the lender’s criteria and the type of mortgage product you choose.

For example, the main factors that can influence your interest rate include:

• Loan-to-Value (LTV): A larger deposit reduces your LTV, potentially giving you access to lower interest rates and a wider range of mortgage products.
• Mortgage Product: Fixed-rate mortgages provide a set interest rate for an agreed period, while variable-rate products can increase or decrease over time.
• Property Type: Some lenders may charge higher rates or impose restrictions on properties they consider higher risk.
• Credit History: Your credit history and score can affect which lenders and interest rates are available to you.
• Lender Pricing: Different holiday let mortgage lenders offer their own rates and product terms, which can vary depending on market conditions and lending criteria.

As holiday let mortgage rates vary considerably between lenders, it can be worth comparing both fixed and variable-rate products to understand which options are available to you.

That said, the interest rates that you are offered will ultimately depend on the lender’s pricing and how your application meets their criteria.

Which Lenders Offer Holiday Let Mortgages?

Although not every mainstream bank offers dedicated holiday let products, several established building societies provide mortgages specifically designed for holiday rental properties.

Some examples of holiday let mortgage lenders include:

• Leeds Building Society
• Hodge Bank
• The Cumberland
• The Mortgage Lender
• Suffolk Building Society
• Darlington Building Society
• Principality Building Society
• Bath Building Society

Please note that this is not a complete list of holiday let mortgage lenders, and the availability of mortgage products will depend on each lender’s current criteria.

At Boon Brokers, we work with over 90 lenders across the UK mortgage market. You can explore the lenders we work with or speak with one of our advisers to understand which providers may be suitable for your holiday let purchase.

Can I Purchase a Holiday Let Through a Limited Company?

Purchasing through a limited company could be a suitable option for investors who are looking to manage their tax liabilities or begin building a portfolio of holiday rental properties.

However, there are several factors to consider when purchasing a limited company holiday let, and whether this approach is suitable for you will depend on your financial circumstances and long-term investment plans.

What Are the Benefits of Buying Through a Limited Company?

The potential advantages of buying through a limited company include:

• Mortgage Interest Tax Relief: Companies can generally deduct qualifying mortgage interest as a business expense when calculating taxable profits. By comparison, individual landlords are generally restricted to basic-rate Income Tax relief on residential property finance costs
• Corporation Tax: Company profits are subject to Corporation Tax, currently ranging from 19% to 25% depending on taxable profits and applicable reliefs. This may be beneficial for some higher-rate taxpayers, although additional tax can apply when profits are withdrawn personally
• Reinvesting Profits: Investors can retain profits within the company after Corporation Tax, potentially using them towards future property purchases without first withdrawing the money as personal income

Following the abolition of the Furnished Holiday Lettings tax regime in April 2025, the tax treatment of holiday rental properties generally follows the rules for other residential property letting businesses.

What Are the Potential Drawbacks?

The potential disadvantages of buying a holiday let through a limited company can include:

• Mortgage Costs and Lender Choice: Fewer lenders may offer limited company holiday let products, and interest rates or arrangement fees can differ from mortgages available to individual borrowers.
• Personal Guarantees: Some lenders require company directors to provide personal guarantees. This means that you may become personally liable if the company fails to meet its mortgage obligations.
• Company Administration: Running a limited company involves additional responsibilities, including preparing annual accounts, submitting company filings and managing tax obligations.
• Company Structure: Many lenders prefer properties to be purchased through a Special Purpose Vehicle (SPV), a limited company established specifically for property investment and letting.

In addition to these potential drawbacks, it’s important to consider how you intend to purchase and own the property from the outset. This is because transferring an existing personally owned holiday let into a company later can trigger property transaction taxes and potentially Capital Gains Tax, depending on the circumstances.

Before proceeding, it’s advisable to speak with a qualified accountant or tax adviser to assess whether the potential tax benefits of purchasing through a limited company would outweigh the additional costs for your circumstances.

How Do I Apply for a Holiday Let Mortgage?

The application process for a holiday let is similar to that of a standard mortgage. However, lenders may have additional requirements, including information about the property’s potential as a holiday rental.

As such, the process generally involves the following steps:

1. Review Your Finances: Assess your available deposit, credit history, personal income and existing financial commitments to understand your borrowing position.
2. Research Mortgage Options: Compare specialist lenders, interest rates and eligibility requirements to identify suitable holiday let mortgages.
3. Obtain a Rental Income Forecast: Arrange a projected rental income assessment, usually from a holiday letting agency, showing the property’s expected earnings across different seasons.
4. Prepare Your Documents: Gather proof of identity, address, income and deposit, alongside any property details and rental forecasts requested by the lender.
5. Submit Your Application: Your mortgage broker can submit your application to the lender, who will then carry out affordability checks and arrange a property valuation.
6. Receive Your Mortgage Offer: If the lender approves your application, you will receive a formal mortgage offer setting out the loan amount, interest rate and mortgage conditions.

Once your mortgage offer has been issued, your solicitor or conveyancer will complete the remaining legal work before the property purchase can be finalised.

How Can a Mortgage Broker Help Me Find a Suitable Deal?

A mortgage broker can assess your application and compare your property’s projected rental income against different lenders’ affordability requirements, helping you understand how much you could borrow and which providers may offer suitable mortgage options.

With whole-of-market access, a broker can explore a wider range of specialist lenders and compare holiday let mortgage rates, fees and lending criteria, while checking any property restrictions that could affect your application.

At Boon Brokers, our advisers have access to thousands of mortgage products from over 90 UK lenders, helping you identify a suitable mortgage based on your financial circumstances and plans for the property.

You’ll also have a dedicated adviser who remains your point of contact throughout the mortgage process. They’ll prepare your application, liaise with the lender and keep you informed as your purchase progresses towards completion.

Our mortgage advice is completely fee-free, meaning you won’t pay any broker fees for our advice or for arranging your holiday let mortgage.