Your holiday let. Properly financed.

Why your normal buy-to-let mortgage will not cover it

Letting a property out by the week to holidaymakers is a different business from letting it to a tenant on an assured shorthold tenancy, and lenders treat it as one.

Income arrives in bursts rather than monthly. Occupancy swings with the seasons and the weather. There is no tenancy agreement in the usual sense, and the property is being run more like a small hospitality business than a rental.

So a standard buy-to-let mortgage usually does not allow it, and letting a property on a mortgage that does not permit it is a breach of your terms. Not a grey area, and worth checking before you list anything anywhere.

How lenders assess holiday let income

Rather than a single monthly rent, lenders generally work from a seasonal picture: an estimate of low, mid and high season weekly rates, with an assumed number of weeks let across the year.

Where those figures come from varies. Some lenders use a holiday letting agent's projection. Some use their valuer's own view. Some will consider the property's actual booking history, which is useful if you are buying a business that already trades.

Then they stress the figures, in much the same way as a buy-to-let, to check there is room if rates rise or bookings dip.

The practical upshot: an optimistic spreadsheet from the seller is not what the lender will use. Expect the lender's number to be more cautious than the brochure.

Personal use, and the thing people forget to mention

Most holiday let lenders allow the owner some personal use, within limits, and will want to know what you intend.

Where it gets complicated is when the property is really a second home you let out occasionally to cover costs, rather than a letting business you occasionally use. Those are different things to a lender, and sometimes to the tax system, and being clear about which one you are doing avoids a difficult conversation later.

Say what you actually plan to do. Lenders are used to it, and the criteria exist precisely because this is a normal arrangement.

Planning, licensing and the local rules

This area has moved a lot in recent years and it varies by nation and by council. Some areas operate registration or licensing schemes for short-term lets, some have planning rules about changing use, and some local authorities have taken a harder line than others.

Scotland and Wales have their own arrangements, which differ from England's.

Because this genuinely depends on where the property is, the advice is to check with the specific local authority before you commit, and to tell me what you find, since a lender will ask. A property that cannot lawfully be let short-term is a problem for you and for them.

The running costs people underestimate

Holiday lets look generous on gross income and they carry costs a standard rental does not:

• Changeovers, cleaning and laundry, every single let
• Bills, since you are paying the heating, power, water and broadband
• Furnishing and replacement, because everything in the house is used hard by people who do not own it
• Agency or platform fees, which take a meaningful slice
• Empty weeks, particularly out of season, which no amount of optimism removes
• Maintenance, at short notice, because a broken boiler on a Saturday changeover is not a Monday job

The headline weekly rate is not the number to build a decision on. The number that matters is what is left in December.

Tax, briefly and honestly

Holiday lets have historically been treated differently from standard rentals for tax, and those rules have been subject to change. What applies to you depends on your circumstances, how the property is held and the rules in force at the time.

That makes it an accountant's question rather than a mortgage adviser's. What I will do is make sure the lending works around whatever structure you and your accountant settle on, whether that is personal ownership or through a company. If it is a company, the business owners and directors page covers how that income is assessed.

Related property types

For standard rentals, see buy-to-let mortgages. For letting by the room rather than the week, HMO mortgages covers how that is assessed, including licensing and valuation.