Holiday Home Mortgage

There are many reasons why someone may want to get a holiday home mortgage, also known as a second home mortgage. Perhaps you want a holiday home to enjoy with your family at the weekends or require a second residence to stay at for work or another home for a family member to live in. Lenders and products available for this type of mortgage are limited and may carry stricter lending criteria but are certainly available.

Getting a holiday home mortgage is a big decision and should not be taken lightly. It is important to carefully consider your options before committing to a particular product. You will need to think about the location of the home, how much you can afford in terms of mortgage payments, what type of mortgage you are looking for (fixed or variable rate) and other factors such as potential rental income from tenants. You may also need to consider the mortgage process, maximum loan available etc.

Read on as we discuss holiday home mortgages in more detail.

Post Topics

What are holiday home mortgages?

Holiday home mortgages outside the UK

Costs to consider

Holiday lets or buy to let

Next steps


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What are holiday home mortgages?

If you wish to buy a second property in the UK or overseas and don’t intend to let it out then you will require a holiday home mortgage or second home mortgage. They are different to a holiday let mortgage or buy-to-let mortgage which allows you to rent the property out so you will need to decide your intended purpose for the property.

Taking out a mortgage to purchase a second home for your own personal use is a similar process to getting a standard mortgage on your main residence.

The main issue people may face when trying to get a mortgage for a second property when they already have an existing mortgage is the affordability aspect. Lenders would need to take into consideration your mortgage repayments on your main residence when assessing your financial commitments and deciding whether you can afford mortgage repayments on both properties. Fees and interest rates for a second home could potentially be higher than a standard mortgage due to the increased risks involved for the lender and not all lenders offer loans for second homes so rates may not be as competitive as standard residential mortgages.

Often you’ll be required to have a deposit of 15% – 25% but the more deposit you have the greater your chances of getting a mortgage providing your finances are in good order and having a bigger deposit could give you access to better rates.

Holiday home mortgages outside the UK

For second homes that are outside of the UK, you have the option to borrow from a UK bank or from a bank in the country where the property is located. Getting a mortgage for holiday homes located in a familiar location such as Spain or France may be easier than some other more remote places and you would usually have to use a UK high street bank with international branches.

Arranging for a mortgage with a bank in the country where the property is located may require a higher deposit compared to using a UK lender and mortgage requirements and processes may differ from country to country and may not be regulated in the same way as it is in the UK.

It is a good idea to be mindful of currency exchange rates and how fluctuations could affect the cost of a mortgage.

Costs to consider

There are a number of potential costs to consider before committing yourself to buying a second home. It is wise to carefully assess your financial situation to ensure you can afford all the expenses since you are unable to rent the property out to generate income with a holiday home mortgage. If careful consideration is not taken and arrears occur, it could affect and jeopardise your first home and put both homes at risk of repossession.

There are an additional 3% stamp duty surcharge added on top of the normal stamp duty charges for any property purchases that are additional homes and increases the costs of purchasing a holiday home or second home.

Other possible costs to consider are:
• Mortgage payments
• Council tax
• Utilities
• Insurance
• Property maintenance
• If the property is overseas, there might be exchange rates to consider.

What are the different types of Holiday Home Mortgages?

In the UK, holiday home mortgages are a type of mortgage specifically designed for purchasing properties that will be used as second homes or holiday homes. These mortgages are different from traditional residential mortgages and often have their own set of criteria and requirements. Here are some of the different types of holiday home mortgages available in the UK:

  1. Second Home Mortgage: This is the most common type of holiday home mortgage. It allows you to purchase a second property that will be used primarily for personal use rather than as an investment or rental property.
  2. Holiday Let Mortgage: If you plan to rent out your holiday home for a significant portion of the year, you may need a holiday let mortgage. These mortgages take into account the potential rental income from the property and may have specific requirements regarding occupancy and rental management.
  3. Self-Catering Mortgage: Similar to a holiday let mortgage, a self-catering mortgage is specifically tailored for properties that are rented out as self-catering accommodations. These mortgages may have stricter criteria related to property location, amenities, and occupancy.
  4. Airbnb Mortgage: With the rise of short-term rental platforms like Airbnb, some lenders offer mortgages specifically for properties intended to be listed on these platforms. These mortgages consider the income potential from short-term rentals.
  5. Overseas Holiday Home Mortgage: If you’re looking to purchase a holiday home outside of the UK, you may need an overseas holiday home mortgage. These mortgages cater to individuals buying properties abroad and may have additional requirements, such as local regulations and currency considerations.

It’s important to note that eligibility criteria, deposit requirements, interest rates, and terms can vary among lenders. It’s advisable to consult with a mortgage advisor or broker who specializes in holiday home mortgages to find the best options for your specific circumstances.

What are the affordability criteria for Holiday Home mortgages in the UK?

Affordability criteria for holiday home mortgages in the UK are stricter than those for residential mortgages. This is because holiday lets are considered to be a riskier investment, as there is no guarantee that they will be profitable.

Lenders will typically look at the following factors when assessing your affordability for a holiday home mortgage:<a name=”Holiday lets or buy to let”></a>

  • Your income: Lenders will want to see that you have sufficient income to cover the mortgage repayments, as well as the costs of running the holiday let.
  • Your deposit: Lenders will usually require a larger deposit for a holiday home mortgage than for a residential mortgage.
  • The property: Lenders will want to see that the property is in good condition and is located in a popular tourist destination.
  • Your experience: Lenders may be more willing to lend to borrowers who have experience in the holiday letting industry.

If you are considering buying a holiday home, it is important to speak to a mortgage advisor to get an idea of how much you can afford to borrow. You should also make sure that you have a clear understanding of the costs involved in running a holiday let.

Holiday lets or buy to let

If you wish to let out your property for a rental income then you will require a different type of mortgage called holiday let or buy-to-let. This mortgage may come with certain added requirements from the lender and the assessment of these will need to include the anticipated rental income and other factors.

It is important to consider whether a holiday let or buy-to-let mortgage is the best option for your finances and needs. When assessing which type of mortgage to apply for, it is essential to understand the differences between the two products. Holiday lets are often subject to seasonal fluctuations in demand, whereas buy-to-let mortgages tend to provide more stable rental income. Additionally, holidays lets may be subject to restrictions such as planning regulations and tax implications.

Next steps

Looking for a holiday home mortgage through a professional advisor could help save you time and allow you to access a wide range of lenders both on and off the high street to help you find the best deal for your situation. Contact us today if you want us to find the right mortgage for you.

FAQs – Holiday Home Mortgages

What is a holiday-let mortgage?

A holiday let mortgage is a loan applied for the full value of the property that could be rented out while the owner remains living in the property. The term ‘holiday let’ refers to the fact that the overseas property is used as a holiday home rather than being rented out permanently. As per the latest statistics more than 80% of Britishers, planning a staycation in the UK this year which has increased the let mortgage rates.

How do I apply for a holiday-let mortgage?

To get started with a holiday-let mortgage application you will need to contact one of our overseas mortgage brokers who will discuss your needs and provide advice on whether a holiday-let mortgage is suitable for you. You can also ask them to look into the availability of a holiday-let mortgage product for you.

Can I use my existing mortgage to fund a holiday-let mortgage purchase?

Yes, you can use your current mortgage to fund a holiday let purchase. However, you will have to pay a fee when transferring your mortgage to another provider. This is due to the fact that the new mortgage lender will charge you a fee for their services. If you are interested in reading about remortgages, you can read our article.

What’s the difference between buy-to-let and holiday let?

Holiday lets are very popular property investments. You can make a lot of money renting them out. Tax reliefs are available on mortgages when letting a furnished holiday let. Buy-to-let properties are taxed less favourably than holiday lets. Also, the rental income from buy-to-let mortgages is different from holiday homes.  Holiday lets are an excellent investment if you want to make additional income off your house while you’re away. You can rent out your house during the summer holidays or winter break. However, this means that you’ll need to spend a lot of time maintaining the property. You also may not be able to sell the property until after the holiday season ends.  If you are interested in a holiday-let mortgage application, you can contact a specialist broker who can help you with an excellent mortgage deal.

What sort of mortgage do I need for a holiday let?

If you wish to let your property out for a short period of time, such as a few weeks, then a simple residential mortgage might work well for you. A holiday let mortgage requires a higher level of documentation compared to a standard residential mortgage. For example, you will need to show proof of rental income from the rental property. In addition, it’s important to keep track of all expenses associated with the property. It may be necessary to include these costs in the rental agreement. If you are looking for a holiday let mortgage, you should consider getting professional advice before applying.

What are the tax implications of a holiday let?

Renting out furnished holiday accommodation means you can claim capital gains relief when you sell the asset, but you’re still liable for any losses incurred during the year. You can claim an allowance for furniture, equipment, etc., and if your business makes losses, you can offset them against profits in future years. And profits from the business are counted as earnings for pension purposes.

How much rental income could I gain from a holiday home?

You can expect to earn around £2,000 per month from a two-bedroom holiday home. The amount depends on location, size, furnishings and how long you plan to stay there. If you have a three-bedroom property, you can expect to earn up to £3,500 per month. If you decide to rent out a four-bedroom property, you could earn up to £5,000 per month.