What’s a holiday let mortgage?

A holiday let mortgage is a loan to buy a property you rent out to guests for short stays. These might be listed on Airbnb or Booking.com or let as holiday cottages. It’s not the same as a buy to let mortgage. Lenders use different rules to check what you can borrow.

You cannot use a standard home loan or a buy to let loan for a holiday let. This would break your mortgage terms. You need a product made for this use.

Fewer lenders offer these loans than standard products. The market is small. A broker who knows this area will be able to find the right lender for you.

This guide covers how these mortgages work, what lenders look for, and what changed tax-wise in April 2025.

Are holiday lets a good investment?

They can be. A well-located holiday property can generate more income per week than a long-term rental. Popular areas can command high nightly rates, particularly during peak seasons.

But holiday lets also carry more risk than long-term rentals. Income is seasonal. There’ll be periods of low or no occupancy. You’re also responsible for furnishing the property and managing it as a short-term rental, which involves more work than a standard tenancy.

The tax position changed significantly in April 2025. The Furnished Holiday Let (FHL) tax regime was abolished. Holiday let properties are now taxed in the same way as other rental properties. The previous advantages, including full mortgage interest relief, capital allowances, and certain CGT reliefs, no longer apply. This affects the financial case for some investors. We cover this in more detail below.

Am I eligible for a holiday let mortgage?

Eligibility varies between lenders, but most will want to see the following:

• Minimum income. Many lenders require a minimum personal income, often £25,000 per year, alongside the holiday let income. This is because holiday let income is variable and can’t always be relied on.
• Existing property ownership. Some lenders require you to own your own home before they will lend on a holiday let. Not all lenders apply this rule, but it’s common.
• Good credit history. As with any mortgage, lenders will check your credit file. A clean credit history gives you access to more lenders and better rates.
• Deposit. Holiday let mortgages typically require a larger deposit than residential mortgages. See below for more on this.
• Property location and type. Lenders may restrict the properties they’ll lend on. High-demand tourist areas are generally more acceptable. Some lenders won’t lend on properties in very remote locations or with non-standard construction.

How is buying a holiday let property different to buying a residential buy to let?

There are several important differences, including:

• Income assessment. For a buy to let mortgage, lenders use the expected monthly rental income to assess affordability. For a holiday let, lenders look at projected peak, mid, and low season occupancy rates. This is a more complex calculation and requires an estimate of annual income across different periods.
• Personal use. You can use a holiday let for personal stays. Most lenders allow this but may limit the number of days per year. Check the specific terms of your mortgage. With a buy to let, personal use is generally not permitted.
• Management requirements. Holiday lets require much more active management than long-term rentals. You need to handle bookings, changeovers, cleaning, and guest queries. Many owners use a holiday let management company to handle this, which adds to costs.
• Insurance. Standard landlord insurance doesn’t cover short-term holiday lets. You need specialist holiday let insurance that covers public liability, guest damage, and periods of vacancy.

How much deposit do I need?

Most holiday let lenders require a minimum deposit of 25%. Some lenders ask for 30% or more. This is higher than many residential mortgages but similar to buy to let.

A larger deposit improves your loan-to-value (LTV) ratio. This can give you access to better rates and a wider choice of products. If you have a smaller deposit, your options will be more limited.

How do lenders check affordability?

Holiday let affordability is assessed differently from both residential and buy to let mortgages. Lenders usually ask for a projection of annual rental income based on peak, mid, and low season occupancy.

Some lenders use a letting agent’s projection for the property. Others have their own assumptions based on the location and property type. The expected rental income must typically cover the mortgage payments by a set percentage, often between 125% and 145%, when assessed at a stressed interest rate.

Because income from short-term lets is less predictable than a fixed tenancy, lenders often take a more cautious view. Some will only use a portion of the projected income in their calculations.

What other costs are involved with holiday let mortgages?

Beyond the mortgage, there are several other costs to budget for:

• Stamp Duty Land Tax. A holiday let is an additional property. The 3% stamp duty surcharge that applies to additional residential properties in England will apply on top of the standard rates.
• Furnishing costs. Holiday lets must be fully furnished to a good standard. Initial furnishing costs for a two-bedroom property can easily run to £5,000 to £15,000 or more depending on the level of finish.
• Management fees. A holiday let management company typically charges 15% to 25% of rental income. This covers bookings, cleaning, and guest management.
• Maintenance and replacements. Short-term lets have higher wear and tear than long-term tenancies. Budget for regular replacements of linen, crockery, and soft furnishings.
• Void periods. You won’t achieve 100% occupancy. Budget for weeks or months when the property generates no income while mortgage payments continue.

Do holiday let mortgages provide any tax benefits?

The tax position for holiday lets changed significantly from April 2025. The Furnished Holiday Let (FHL) tax regime, which previously gave short-term rental owners a range of advantages over standard landlords, was abolished by the government.

Before April 2025, holiday let owners who met the HMRC occupancy conditions could benefit from full mortgage interest relief, capital allowances on furniture and fixtures, and certain Capital Gains Tax reliefs, such as Business Asset Disposal Relief. These advantages no longer apply.

From April 2025, holiday let income is taxed in the same way as any other rental income. Mortgage interest relief is now restricted to the 20% basic rate tax credit, the same rule that applies to other private landlords. Capital allowances on new expenditure are no longer available.

Some allowable expenses can still be deducted from rental income. These include letting agent fees, maintenance costs, insurance, and utility bills where included. But the specific advantages that previously made holiday lets more tax-efficient than standard buytolet are gone.

If you’re assessing the financial case for a holiday let, it’s important to model the tax position under the current rules. Speak to a qualified accountant before you proceed.

Final thoughts

Holiday let mortgages are a specialist product. The eligibility criteria are stricter, the deposits are larger, and the income assessment is more complex than for standard buytolet.

The abolition of the FHL tax regime in April 2025 has also changed the financial picture for holiday let investors. Anyone considering this type of investment should take professional tax advice and model the numbers carefully.

If you’d like to explore your options, Pepper Money works with specialist brokers who understand the holiday let mortgage market. You can find a broker through us today.