The costs of running a holiday let will be higher because of the high turnover of tenants, and the chances of getting a mortgage of more than 60% to 75% of the property's value are lower than with a buy-to-let mortgage.
Mortgages for holiday let businesses: The financial solutions you need
Finance to buy, convert, refurbish and operate furnished holiday letsSpeak to one of our experts020 4525 5312
- Up to 80% Loan to Value available
- £50,000 – No Maximum
- Rates from 2% over base rate
- Market value or business value
- Repayment and interest only available
- Adverse Credit – no problem
- Income to be 125% of the mortgage interest,
- Finance for refurbishment
- Refinance existing property assets
- Land purchase
- Oveseas solutions
Holiday Let Mortgages
Holiday home let mortgages are a form of lending designed for properties outside of your permanent residence which you let on a short-term basis
Holiday let mortgages, unlike standard residential ones, typically come with more demanding capital expectations and stricter eligibility criteria. To ensure you start your holiday let ownership journey correctly, you need to understand your options.
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Holiday homes, whether in the UK or abroad, can be a lucrative business - and a good-quality property in a sought-after holiday location could bring you in three times the annual income of a standard buy to let property.
A 4/5-bedroom holiday cottage in a popular area, with a good level of equipment and its own pool, could generate upwards of £3000 a week in high season. A standard property with a similar number of bedrooms for the year-round rental market in the same areas could bring in £800 a week according to listings on Rightmove.
You may be ready to buy your first holiday home, or you may already be operating the first of what you intend to be a series of properties. You may want to turn a holiday home into the basis of a holiday homes business. You may simply want to invest in improving the facilities of a property to increase the yield. But like any business, you need finance to take things further.
We have a range of funding solutions to help you make the most of your holiday home business plans.
How does a holiday let mortgage work?
Holiday let mortgages are unique to holiday let owners and are designed around the specifics of the industry, such as guest and area risks, booking projections etc.
A holiday let mortgage is ideal for those who are looking to borrow money for a property that will be let out on a short-term basis to visitors and is classed as a business.
This differs from a standard holiday home mortgage. A holiday home mortgage is where you borrow money to buy a second home that only you will use.
It is also different from a buy-to-let mortgage, where you would buy a property that will be let out long term.
The main advantage of a holiday let is that you can rent it out for far more money and you could generate a much higher income.
Furnished holiday lets have different tax rules as they are classed as businesses which means you can claim tax relief on mortgage interest.
For a property to count as a holiday let, it must be available for letting for at least 210 days per year, leaving you 22 weeks to enjoy your holiday home.
We've recently produced a full, in-depth guide to holiday let mortgages, so click the link to get a more complete answer.
Staycations are on the rise, and the economy is uncertain after the Covid-19 pandemic. This means that traditional buy-to-let is a less attractive option. However, short-term holiday lets are a great way to get a solid return on property investment.
How much can I borrow?
Some of our lenders can lend up to 75% LTV on a two or five-year fixed-rate mortgages with loans from £50,000 to £1.5million. Of course, the actual amount will depend on the ability to afford the loan based on their expected holiday let rental income. To find out how much you can borrow, speak to Rangewell today.
How much deposit do I need?
To get a holiday let mortgage, you’ll typically require a minimum 25% - 30% deposit. This is because there is more risk to the lenders of a holiday let than with a standard mortgage. Lenders will look to see if your property will generate an income of 125% - 145% of the interest payable on the mortgage. You’ll also need to show you can afford mortgage payments during periods when your property isn’t being rented out.
As with many finance applications, Rangewell can help you strengthen your application and negotiate a better rate by working with you on your business plan. In the case of holiday let mortgages, being able to demonstrate high demand for tourism in your area can be an advantage, as can solid income projections.
How much will a holiday let mortgage cost?
The cost of a holiday let mortgage may be higher than a standard buy-to-let or residential mortgage, as lenders can view them as riskier. You should never, however, consider trying to use a property bought under a different type of mortgage for holiday letting. Doing so is against the terms of your mortgage agreement. This counts as mortgage fraud and lenders could call in the loan, which can lead to other ramifications such as your insurance being cancelled and your reputation damaged.
If you need a mortgage to fund your holiday home investment, you’ll need a commercial or specific ‘holiday let’ mortgage rather than a standard buy to let loan. Lenders will want the projected letting income to be well above the annual mortgage interest. Like BTL mortgages, this generally requires a rental income, after the agent’s commission, to be at least 125% of the mortgage interest, calculated at an interest rate of 6%.
Some lenders will look at the property’s market value when making a lending decision. Others will take income into consideration. If a property has an established history of holiday rentals, they may base the size of the mortgage on the expected rental yield.
Lenders will expect holiday let landlords to own another property and have a personal income above a certain minimum level. Getting a mortgage to buy a holiday home property may be easier if you already own and operate a holiday home, and can show evidence of running a successful business.
It may also be possible to secure lending to buy a holiday home with a commercial mortgage. If you need to fund a holiday home purchase at short notice, perhaps in an auction, a bridging loan might be suitable to provide large-scale funding at short notice, until you can arrange longer-term finance.
Contact us to discuss Commercial Mortgages, Bridging Loans or even Property Development Finance.
What about a holiday let mortgage abroad?
Buying a holiday home overseas can be more of a challenge. Traditional mortgages, including BTL and even holiday-let mortgages, are not suitable for property outside the UK. However, there are solutions that can provide the funds you need to buy a property abroad.
These can include loans and commercial mortgages secured on property that you own within the UK. So if you own property, including holiday homes in Britain, you may be able to raise funds on them which you then use to buy your property abroad.
Holiday let refurbishment finance
To realise the top rates for your holiday home, you will need to provide top-class facilities. Holiday homes need to be furnished to a high standard with all mod-cons. Wi-Fi has become a must, as is a state of the art television, and many guests will expect to find a kitchen at least as well equipped as the one they have at home.
Many owners report that installing a pool is also necessary. In the UK, a heated pool that can be used all year round is seen by many guests as essential, and having an enclosed pool can make the difference between long voids and a holiday home that is booked all year round.
Providing finance for refurbishing and equipping holiday homes can be achieved with a number of lending products. Smaller needs, such as an end of season refreshment of decoration, and replacement of furniture that has seen hard use, may be provided with an unsecured loan. The funds for more extensive work, such as installing a pool and associated equipment, and completing it with a weatherproof enclosure might need a business loan secured on your property itself.
Contact us to discuss the most appropriate type of finance for your refurbishment needs.
Asset finance for holiday homes
While it is often associated with high-value assets such as industrial machinery, asset finance may be a useful option in some cases for holiday let operators. Asset finance is when a lender issues funds which are guaranteed against the value of the asset, so they have added security if you default. For holiday lets, this may be ideal for expensive equipment that can increase your bookings such as hot tubs or entertainment systems.
Like many forms of finance, asset finance loans are offered on a case-by-case basis. If you need to outfit your holiday home with new equipment, get in touch with Rangewell today to see how asset finance can help you.
Finance for operating your holiday home business
A holiday home may well offer substantial returns but, as with any business, there will be some significant costs to consider. The property must be thoroughly cleaned and the linen changed between guests.
You may be able to do this yourself but, if you don’t live near the property, you might need to hire a local cleaner to do it for you. The same goes for checking guests in and out, handing over and retrieving keys and dealing with breakages. Hiring a local agent to do this for you will eat into your profits.
Paying for local people to be on hand to deal with turnarounds and problems that inevitably arise will be essential if your holiday home is located abroad.
You will also need public liability insurance to cover any injuries to guests or your staff, and the usual buildings and contents cover essential with any property.
Another inevitable cost of running your holiday home business will be the cost of marketing. While there are many services that can take care of publicising and booking your properties, they may cost a substantial percentage of rental income or an upfront charge. It’s not uncommon for a letting agent to charge 20 to 30% (plus VAT) of each holiday rental if they offer a full management service.
You may need to arrange finance for many of these expenses at the beginning of the season before the full income from your business starts rolling in.
As a business, you may be able to arrange working capital loans at the beginning of a season. These are designed to provide the funds you need for the short expenses of operating a business and are designed to be paid back once funds start coming in.
Contact us about Working Capital Finance.
Dealing with emergencies
Any emergency in a holiday home can be costly to your business. A problem with facilities such as heating or plumbing, which might be relatively minor in a conventional property, could cost you one week of rental income, potentially running into thousands in a holiday home in peak season. It is possible to arrange an unsecured loan at short notice to deal with the costs of calling in expert trades and replacing key items at short notice.
Contact us about fast access to funds with a Short-term Loan.
Tax Loans - the answer to seasonal cash flow problems
Tax is an issue for every business. A large quarterly VAT or annual tax demand can cause problems with your cash flow, particularly if it falls at the same time as other costs, or in the middle of a slow season.
Tax Loans help you to spread the cost of your tax demands into affordable monthly payments, helping ensure that your business does not have to go through a cash-flow drought.
Benefits of a Tax Loan:
- Better control of cash flow
- Fixed monthly payments
- Quick and simple to arrange
- Avoids issues with HMRC and potential penalties
Goodwill Loans – funding property overseas
Goodwill Loans, also known as Capital Withdrawal Loans or Cash Outs, lets you access the value of a UK business or healthcare practice, without causing potential cashflow difficulties. They allow you to use the goodwill built up in the practice as the security for a loan. It can bring you a sum typically between £50,000 and £500,000, with repayments over terms up to 15years. Interest rates are agreed when the loan is taken out, and are variable - but will be significantly more favourable than those provided by other lending methods.
The Goodwill Loan can be used in any way that you wish. Many people use a Goodwill Loan to buy an investment property, including property overseas. It could provide a cost-effective way to fund a Holiday home as the basis for a new business.
Get our help finding the most competitive Goodwill Lending for your needs.
Working Capital Finance
Working Capital Finance is designed to boost the working capital available to a business. It's often used to provide cash to pay staff and suppliers while business is slow during periods of slower business, such as off-peak seasons or perhaps during a period of growth. It is usually designed to be repaid in the short- to medium-term, once the business and properties are back to operating close to full capacity.
Why you need Rangewell to find finance for your holiday homes
As a property owner, many lenders will be happy to lend to you to buy or develop property in the UK.
Buying or improving property abroad can be more of a problem. Many lenders are simply not able to provide any kind of funding for property outside the UK. At Rangewell, we know those that are.
Whether you have a straightforward, small-scale funding need for a single property, or require a complicated ‘Jigsaw’ funding plan made up of a combination of financial products for a major holiday home development in Britain or overseas, we can work with you to find the answers.
Call us now to get our experts working for you to find the most appropriate and affordable funding for holiday lets.
REAL EXAMPLES OF WHAT WE CAN DO
Find the most competitive funding to allow a holiday home investor buy his first property
Help a UK holiday home owner raise funds to buy property in Spain
Source an Unsecured Loan to allow a holiday home owner to refurbish a 19th-century cottage and provide modern heating and lighting
Find the most competitive finance to allow an owner to build an enclosed pool to support year-round lettings
Arrange funding to allow a holiday home owner to acquire a portfolio of properties in the UK and the south of France
Last update: 23 January 2023
Frequently asked questions
Have a question?
Owning a holiday let can be financially rewarding, but it will only be profitable if you treat it like you would do any other successful business.
You should carefully consider this decision before committing. You’ll need to understand the market, interest rates, and other influencing factors.
The staycation market has been rising since Covid, and fewer people are looking to travel abroad. With the staycation trend looking to continue, this is an ideal time to invest in a holiday let.
Short-term holiday lets tend to be more lucrative compared to long term rentals. This is because the weekly rates charged for holiday lets are significantly higher, which increases earnings.
The biggest motivator for investing in a holiday let is combining owning your dream home with running a business while setting your holiday costs.
Each lender will have their own criteria, so speak to Rangewell for more information.
To avoid a last-minute scramble when applying for an e-commerce business loan, there are key documents that you should gather when approaching a lender.
Firstly, you should ideally apply for a loan before you need it. It would help if you had an idea of the lender's requirements before committing to a loan. You'll need to have the following documents on hand.
- Credit score: The lower the credit score, the higher the risk, but this doesn't mean to say you won't qualify for a loan if you have an adverse credit score. Businesses can check their credit scores online but may have to pay a fee to access a full report.
- Annual revenue: Make sure you have accurate financial statements over the past two years. Many lenders will ask for copies of your bank account transactions so they can confirm cash flows that are reflected on your statements.
- Updated business plan: The lender will want to know how your loan will be used and how the company plans to grow, so ensure you have a ready-to-go business plan available. It should also include a plan on how to pay the money back.
- Additional collateral: You'll need to provide a personal guarantee to the loan, or you can pledge additional collateral such as personal real estate or other financial resources.
Typically, it would be best if you made a gross (pre-tax) income of 125%-145% of the monthly mortgage repayments calculated at a 5.5% interest rate. In addition, most lenders will require you to own your own home and are above 21 years old. Each lender has different criteria. Speak to Rangewell for more information.
Some alternatives to holiday let mortgages are:
Remortgaging your own home: If you have enough value in your current property, you can remortgage it to fund the purchase of a finished holiday let.
Cash purchase: Some investors might be able to afford a holiday let property outright with no mortgage.
To find out more about your options, speak to Rangewell today!
Download Rangewell’s free and detailed guide to Property Finance
What types of Property Finance are there - which is right for you?
Why not all providers are equal
How we can help you pay less
The downsides to Property Finance - and how to avoid them
How to arrange Property Finance - What paperwork do you need?
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