A buy to let and a holiday let purchase involve buying a property and letting it out to a third party. However, it’s important to understand that they are not the same thing, and require different mortgage types.
We look at what separates them and how to decide which best suits your needs.
Buy to let vs holiday let – what are the main differences?
A buy to let is where a property is let out to a tenant who’ll be living there for an extended period; it’s their home. A holiday let offers short-term stays, usually for no more than two or three weeks at a time. The holiday let tenants stay as part of their holiday or time away.
There is more choice of buy to let mortgages, interest rates tend to be lower, and you sometimes require a lower deposit. The criteria is usually stricter for holiday let than for buy to let. This is because buy to let property investments are usually viewed as lower risk than holiday let investments.
How the borrower or owner themselves might affect the type of mortgage you need:
- Age restrictions – some lenders put in minimum and maximum age restrictions. These might be different depending on whether you need a holiday let or a buy to let mortgage. It’s important to remember, that criteria varies from lender to lender, so always remember to check the terms and conditions.
- The total number of let properties you own (and this varies depending on whether they are mortgaged or not).
- Your homeowner status – if you don’t own your own home you may find it’s more difficult to get a holiday let mortgage than a buy to let mortgage. Likewise, whether you’ve been a landlord before or not might affect your ability to obtain a holiday let mortgage, or the amount of deposit you’d require.
- Minimum income – some lenders may have different minimum income requirements for buy to let versus holiday let.
- Using the property yourself – one key difference between the types of mortgages is the ability to use the property yourself. It could be a breach of your mortgage contract to move into a buy to let property yourself, without the consent of your lender. However, with a holiday let, you are allowed to stay in it yourself a certain number of days per year. This is often around the 60 days mark.
How the property itself might make a difference
- The location – holiday let mortgages will usually only be allowed in tourism hotspots. These could include the picturesque coasts of Suffolk or Cornwall, to the rolling hills of the Welsh valleys. Properties in some of our great towns and cities, which cater for the growing city break market, may also work. If the investment property you want isn’t situated in a popular tourist area, you may find you’re only able to finance it as a traditional buy to let. For a buy to let mortgage, a lender may want to see evidence of rental demand. For example, are there young professionals in a city centre? Or maybe there are decent volume of families who rent in the suburbs?
- The rental income affordability for both buy to let and holiday let mortgages is based on rental income. However, the calculation is different. For a holiday let, the anticipated revenue is based on an average across low, medium and high seasons. This is combined with an estimate of the number of weeks it will be rented out. A holiday let will need to be available for bookings on a certain number of weeks of the year. For a buy to let, the income used will be the estimated monthly rent. Many lenders will require the property to be let on a 6-12 month tenancy.
- The lease – if it’s a leasehold property, it’s worth checking if a holiday let is allowed within the conditions of the lease.
- Minimum value – some lenders may place a minimum value on a holiday let that is much higher than for a buy to let.
