Holiday let vs buy-to -let: what is the difference?

Published on
4 March 2022

What is the difference between Holiday Let and Buy-To-Let?

In simple terms, a holiday let is a property investment, but with some key differences from a traditional buy to let purchase.

The biggest is the length of a tenancy for a holiday let, which tends to run for a matter of
days or weeks, rather than the months or years of a tenancy in a typical buy-to-let property.

There are also distinct rules covering the occupancy conditions of holiday lets. For example,
while investors are able to use a holiday let for their own trips away, HMRC rules state that it
must be available for letting as furnished holiday accommodation for at least 210 days of the

The property must then be let to the public for at least 105 days in the year - investors can’t
count any days when they let it to friends and family at a reduced rate, or even for free,
within that total.

Getting a holiday let mortgage - what do lenders look at?

Affordability is a crucial element of all mortgage applications, but particularly for holiday lets
given how variable the income can be. With a traditional buy-to-let investment, the tenant is
expected to make the same rental payment each and every month, but that isn’t always the
case with holiday lets.

The seasonal nature of owning a holiday let means that there will be periods of the year
where demand is high, and the rents charged can be increased, but there will also be
periods when the interest from potential tenants will drop significantly.

As a result, lenders will look at the average weekly rental for low, medium and high seasons,
and then find the average of those three amounts to come up with a single figure. Lenders
will use this figure to work out what they are willing to lend investors for a holiday let
purchase or refinance.

In some cases, these figures will come from the borrower’s own experience, as they already
own the property. However, in other cases - where the borrower is looking to purchase a
holiday let - then the figures may have been compiled on the borrower’s behalf by a local
holiday letting agency.

Location, location, location

The sorts of property that will appeal to borrowers considering a holiday let purchase can be
strikingly different from those targeted by buy-to-let purchasers. A buy-to-let investor might
prioritise properties which will appeal to tenants for a longer period - those within city
centres, or with excellent transport links into employment hubs. By contrast, popular holiday
let properties might be a little more remote, such as cottages on the coast.

Where the holiday let is situated will also have a bearing on your client’s ability to access a
holiday let mortgage. For example, not all lenders will lend against purchases in the Scottish
Highlands, while some areas have additional rules in place over short-term letting.
At The Cumberland, we lend throughout mainland UK and the isles of Anglesey, Arran, Mull,
Skye, Lewis, Harris and Wight.

A separate income

When it comes to holiday lets, lenders will often look for borrowers to have an income
outside of their property investment.

At The Cumberland, the level of that personal income will play a factor in whether borrowers
qualify for our standard or non-standard holiday let products, alongside other considerations
such as whether the property is being bought as an individual or limited company, whether
the applicant owns a residential property and whether occupancy restrictions apply.

Crucially, at The Cumberland we conduct our mortgage decisions manually, rather than
relying on computer algorithms. It means our underwriters can get a better understanding of
a holiday let application and consider cases that other lenders might shy away from, such as
multiple letting units on a single title, properties across split titles and limited company
purchases. Our extensive experience in the holiday let market means we are well positioned
to deal with cases of all different shapes and sizes.

A growing market

Interest in the holiday let market has grown substantially over the past couple of years. The
pandemic has limited options for overseas holidays, meaning increased numbers of people
are opting for a staycation.

This spark in demand has led to more property investors taking a serious interest in the
sector and investigating their investment options.

At The Cumberland for example, we saw the number of applications for holiday lets for 2021
jump by 164% compared to 2020, while the value of the holiday let mortgages investors are
looking for has rocketed by 194% over the same period.

While the market remains small compared to the traditional buy-to-let market, it’s likely to
see further growth in the years ahead given it was already growing before Covid-19 arrived
on the scene.

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