If you’re thinking about buying a holiday home to let out, don’t be tempted to take out a buy to let or residential mortgage to fund your purchase. If your lender discovers that you’ve done this, they are within their rights to demand full repayment of your mortgage and you may struggle to get a mortgage elsewhere. Instead, you’ll need a holiday home mortgage – these are a relatively niche product, so it’s often a good idea to seek help from a broker specialising in this area.
You’ll need to put down a deposit of at least 25% of the property value if you’re buying a holiday home, although some lenders will require a 35% deposit. The bigger the deposit you have, the better the holiday let mortgage rates you’ll have access to. As well as having a sizeable deposit, you’ll also need to meet lenders’ affordability assessments.
Andrew Soye, founder of Holiday Cottage Mortgages, said: “Most lenders who offer holiday home mortgages will want to see that you have sufficient background or “earned” income, separate from the rent of the holiday let itself, to cover your mortgage costs during any periods where your property isn’t let. They’ll typically require an annual income of at least £20,000 or £25,000+ from a job (employed or self-employed), or if you are retired, an annuity or pension income.
“Lenders won’t usually be prepared to accept income from flexible drawdown however, as they can’t rely on that to keep coming in rain or shine.
“When assessing holiday let mortgage applications, lenders will look at the projected rental income and run a calculation to determine the maximum loan size. If your holiday let is a purchase, then you will normally need a projection letter from a reputable holiday letting agency to support this.”
Bear in mind that the location of your holiday home could also have a bearing on whether or not lenders will offer you a mortgage. Chris Baguley, commercial director at specialist lender Together, said: “Lenders could refuse an application depending on the location of your holiday home – especially if you’re buying a place in an area that has a risk of flooding – like in the Lake District.”
Holiday Cottage Mortgages has a useful Holiday Let Mortgage Calculator to help you work out how much a mortgage on a holiday home will cost you.