Buying a holiday let: from finding a mortgage to getting insurance

Invest in a holiday let and you could pocket even more cash than from a buy-to-let. But what sort of mortgage do you need? And how do you find guests?

Holiday lets: make more money than buy-to-let

Buy-to-let is a popular way to make money from property, but holiday letting may be even more lucrative. According to figures from specialist broker Holiday Let Mortgages, if you own property in sought-after locations you could pocket three times the annual income of a buy-to-let investor!

However, owning and renting out a holiday home is a different ball game to standard buy-to-let and it’s important to know what you’re doing.

Holiday let mortgages

If you need a mortgage to fund your holiday home investment you’ll need a holiday let mortgage rather than a standard buy-to-let loan.

Only a handful of lenders lend on holiday lets. These include Cumberland Building Society, Leeds Building Society and Monmouthshire Building Society.

Going to a mortgage broker might be your best bet – a good broker will know which lenders to approach. 

Big high street lenders tend to steer clear of holiday lets due to the sporadic nature of the rental income.

Compare mortgages with loveMONEY

Deposits and letting income for holiday let mortgages

As with buy-to-let, deposit requirement for holiday lets are higher than for residential home loans. Cumberland Building Society, for example, requires a minimum deposit of 25%, while Leeds Building Society looks for 30%.

Lenders will also require the letting income to be a certain percentage over and above the annual mortgage interest. Cumberland requires the rental income, after agent’s commission, to be at least 125% of the mortgage interest, calculated at an interest rate of 6%.

Lenders will generally require holiday let landlords to own another property and some will require a minimum personal income too – Monmouthshire requires holiday let borrowers to earn at least £40,000 a year from their job for example.

Don’t be tempted to rent out any property with a residential or buy-to-let mortgage to holidaymakers. This counts as mortgage fraud and the lender could potentially call in the loan if it finds out.

How much can you make?

At a quick glance it can seem that holiday let landlords are raking it in compared to landlords letting property to tenants.

Take a three-bedroom holiday cottage in Cromer, Norfolk, for example. According to holidaylettings.co.uk, owners can rake in anything from £460 to £825 a week.

A look at rentals on Rightmove suggests a three-bed property in Cromer generally rents for £800 to £1,100 a month.

However, it’s important to understand that income from a holiday let won’t be regular or guaranteed.

While you might be able to command high rents in holiday periods, you may have void periods at other times of year.

Compare mortgages with loveMONEY

Profit and tax

Holiday lets are much more time consuming and expensive to run than standard buy-to-lets.

The property will need to be cleaned, and the linen changed, in between guests. Depending on whether you live near the property, you might need to hire a local cleaner to do this. The same goes for checking in guests and handing over keys – hiring a local agent to do this will eat into your profit.

As the owner you will also be responsible for Council Tax and utilities. These bills are paid by the tenant in a normal buy-to-let.

Holiday homes tend to be furnished to a high standard with all mod-cons. Wi-Fi is a must, as is a television. You will also need public liability insurance to cover any injuries to guests or staff such as cleaners, as well as the usual buildings and contents cover.

All of these costs will eat into your profit. However, they will be tax deductible. Holiday let landlords can also claim ‘capital allowances’ for the cost of furnishings and furniture, and equipment such as fridges and washing machines.

Other costs that can be offset for tax purposes include letting or managing agent fees, accountants’ fees, buildings insurance, maintenance, and repairs to the property.

How to pick an area to invest in

Holidaymakers have very different needs to permanent tenants. The more people you will appeal to, the more in demand your property will be. So think about making your holiday let both child and dog friendly.

In general, people want to go on holiday where there are things to see and do. Properties near beaches, lakes, mountains, tourist attractions and city centres will be in demand.

Investors might be tempted to pick an area where they like to visit themselves. But bear in mind if you stay in the property during peak periods you’ll be missing out on rental income.

How to advertise for guests

Holiday home owners have two main options when it comes to advertising their property for rental.

Firstly there are a number of specialist holiday home websites such as ownersdirect.co.uk, holidaycottages.co.uk and holidaylettings.co.uk. You will normally need to pay to list your property.

Alternatively peer-to-peer home rental sites such as Airbnb and Wimdu allow you to list your property for free but the site will take a cut of the booking fees you receive.

Compare mortgages with loveMONEY