What is the difference between a holiday let mortgage and a standard buy-to-let mortgage?

Full answer

Choosing the right type of mortgage matters significantly for holiday let property owners, since using a standard buy-to-let mortgage for short-term holiday letting without the lender's knowledge and consent can be a breach of the mortgage terms, regardless of the tax treatment of the income. **Why standard buy-to-let mortgages are usually unsuitable** Standard buy-to-let mortgages are underwritten on the assumption of a single, longer-term Assured Shorthold Tenancy, with rental income affordability tests based on that ongoing tenancy income. Most standard buy-to-let lenders explicitly prohibit short-term or holiday letting (sometimes defined as lettings under a set number of months) under their mortgage conditions, meaning using such a property for holiday lets without permission could constitute a breach of contract, potentially allowing the lender to demand immediate repayment. **How holiday let mortgages assess affordability differently** Holiday let mortgage lenders typically require evidence of projected rental income across a full year, often based on a blend of high-season and low-season achievable rates (since holiday letting income is inherently seasonal and variable, unlike a fixed monthly long-term tenancy rent), sometimes supported by an independent letting agent's projection. Lenders may apply a specific rental cover ratio (for example requiring projected rental income to cover 125% or more of mortgage interest at a stressed rate) similar in principle to standard buy-to-let affordability tests, but calculated against this blended seasonal income figure. **Deposit and rate differences** Holiday let mortgages often require a larger minimum deposit (commonly 25% to 35%, sometimes higher) than some standard buy-to-let products, and interest rates and arrangement fees can be higher, reflecting the lender's view of the higher income volatility and specialist nature of holiday letting compared with standard long-term rental. **Personal use restrictions** Many holiday let mortgage lenders place limits on how many weeks a year the owner (or their family) can use the property themselves for personal holidays, since excessive personal use could affect both the mortgage terms and, separately, whether the property still qualifies for any beneficial tax or business rates treatment associated with genuine holiday letting. **Tax treatment since the abolition of the Furnished Holiday Lettings regime** As the previously favourable Furnished Holiday Lettings tax regime has been abolished, holiday let property income is now generally taxed under the same rules as any other residential letting, including the Section 24 restriction on mortgage interest relief -- meaning the choice of holiday let versus standard buy-to-let mortgage is now primarily a lending and affordability question, rather than one with major differing tax consequences as it once was. **Worked example** A coastal cottage is projected to generate £9,000 in high season (April to September) and £3,000 in low season (October to March) rental income, a blended annual total of £12,000. A specialist holiday let lender assesses affordability against this £12,000 blended figure using its own rental cover ratio and stressed interest rate, rather than requiring a single fixed monthly rent figure as a standard buy-to-let lender would expect. **Practical tip** If you intend to let a property short-term for holidaymakers, arrange a specific holiday let mortgage (or get explicit lender consent to add holiday letting to an existing buy-to-let mortgage) before you start letting, rather than assuming your existing buy-to-let terms already permit it.

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