Holiday let mortgages

What counts as a holiday let

For mortgage purposes, a holiday let is a furnished property let on short tenancies (typically nightly or weekly) to short-stay guests, with no single tenant in occupation for an extended period. Historically, holiday lets could qualify as Furnished Holiday Lettings (FHLs) and benefit from favourable tax treatment. The FHL regime was abolished from April 2025, and holiday-let income is now generally taxed under the standard property income rules. Tax treatment should be reviewed with an accountant before purchase.

Lender appetite and pool

Holiday lets are funded by a small specialist group of lenders. Mainstream players include a handful of building societies, the depth is in the specialist segment. Lenders want to see a realistic letting income projection from a recognised holiday-let agency (Sykes, Cottages.com or local equivalent). They will not accept your headline Airbnb forecast.

Worked example, a Cornwall coastal cottage

Illustration only: a £380,000 property with a 25% deposit means a £285,000 loan. Assume projected annual holiday income of £36,000, a lender accepting 70% of it, a 5.5% annual stress rate and 145% interest cover. Accepted income would be £25,200 and the illustrated required income £22,728.75. A long-term rental estimate of £1,400 a month is £16,800 a year and would not meet that same test. These are hypothetical assumptions, not an agency projection, lender criterion or lending decision. A real application also depends on eligibility, costs, the property, permissions and the lender's current assessment.

Stress tests on holiday lets

Holiday-let affordability methods vary by lender. A lender may consider projected holiday income, a long-term rental benchmark or other evidence, using its own deductions and stress assumptions. A possible switch to long-term letting depends on lender consent, planning or licensing restrictions and the applicable tenancy law; it is not an automatic fallback.

Local-authority short-let licensing

Several councils now require short-let registration or licensing, and a few require planning permission for use as a holiday let (London C3 to C4 designation rules and Scottish short-term-let licensing are the most-developed examples). The cost ranges from a nominal registration fee to several thousand pounds plus annual renewal. The lead time can be 3 to 12 months. Some councils have moratoriums on new short-let licences in saturated areas. Check the local rules before you offer; we have seen this kill cases at exchange.

Tax position

FHL status historically gave holiday lets a more favourable tax treatment than standard buy-to-lets, including full mortgage interest deductibility and capital allowances on furniture. That regime has been changing, the practical effect for new buyers is that the personal-name versus SPV (Special Purpose Vehicle) maths needs to be redone for current tax rules. We will not give the answer in a blog post, take advice from an accountant on the current position.

Operational reality

Holiday lets are higher gross yield than single-lets but materially higher in operational work. Expect platform commission of 15% to 25%, weekly cleaning at £80 to £200 per turnover, linen hire, key handover, marketing photography, plus seasonal voids in winter (especially outside core destinations). Net yield is often closer to a single-let figure once these are subtracted. We brief you on realistic net numbers, not headline gross.

Common pitfalls we see

Before proceeding, check the lender's consent for short stays, local planning and licensing requirements, realistic operating costs and what happens if holiday income falls. Any change to long-term letting requires the relevant permissions and a lender-approved arrangement.

Buy-to-let warning

Most buy-to-let and holiday-let mortgages are not regulated by the Financial Conduct Authority. SDLT (Stamp Duty Land Tax) including the 5% additional-property surcharge applies in full to a holiday-let purchase. Local councils are increasingly imposing short-let licensing schemes, check the rules in the area before you buy.