Guide to Short Term Let Mortgage & Rates | Your Holiday Letting Experts

Getting a short-term let mortgage is a possible but complicated process.

Short-term let mortgages are designed for property owners who want to rent out their properties on a short-term basis, typically for periods of less than six months. These mortgages are different from traditional buy-to-let mortgages, which are intended for long-term rental arrangements. Obtaining a short-term let mortgage can be more challenging due to the higher risk associated with shorter rental periods.

One of the key factors that lenders will consider when determining eligibility for a short-term let mortgage is the potential rental income that the property can generate. Lenders will likely require proof of how much you expect to earn from renting out your property and may also assess the property’s location, size, and condition to determine its rental value.

In addition to rental income, lenders will also consider your own financial situation, credit history, and ability to make mortgage payments. They will want to ensure that you have a reliable source of income and a good credit score before approving you for a short-term let mortgage.

It is important to note that not all lenders offer short-term let mortgages, so it may take some time to find a lender that is willing to work with you. Additionally, interest rates on short-term let mortgages are typically higher than those for traditional buy-to-let mortgages, so be prepared for potentially higher costs.

Before applying for a short-term let mortgage, it is important to thoroughly research and understand the terms and conditions of the loan. Make sure you are aware of any fees, penalties, or restrictions that may apply. It may also be helpful to work with a mortgage adviser who can guide you through the process and help you find the best mortgage option for your needs.

In summary, obtaining a short-term let mortgage can be more challenging than a traditional buy-to-let mortgage due to the higher risk involved. Lenders will consider factors such as potential rental income, your own financial situation, credit history, and property location when determining eligibility. It is important to thoroughly research and understand the terms of the loan before applying, and working with a mortgage adviser may be beneficial in finding the best mortgage option for your short-term rental property.

Can I get a short-term let mortgage?

Yes, you can get a short-term let mortgage if you qualify the lender’s criteria.

The surge in popularity of the staycation has made an investment in a holiday home an even more attractive proposition for many landlords.

Indeed, there is plenty of evidence to suggest that short-term holiday lets are more lucrative than longer-term tenancies.

A posting by Coast and Country Cottages on the 28^th of January 2022, for example, suggests that the landlord of a single holiday let property earns an average of £21,000 annually.

Why are lenders reluctant to accept Airbnb-style lets?

The growth in staycations and increase in demand for short-term accommodation has also been fuelled by the likes of internet platforms such as Airbnb.

While mortgage lenders naturally welcome money-making property investments, a holiday let mortgage can prove somewhat more difficult to find. Some lenders have fought shy of lending for property intended for letting on a short-term basis akin to AirbnbWhat is Airbnb? Airbnb is an online platform that allows pro... arrangements. A so-called Airbnb mortgage, therefore, might be especially difficult to secure.

Lenders’ reluctance stems from the following considerations:

• because a lot more different people are going to have access to the property for short stays, there is a greater risk of loss or damage to either the structure and fabric of the building, its contents, or both;
• it’s in the nature of a holiday let – typically seasonal – that voids are longer and more frequent;
• some of the accommodation platforms, such as Airbnb, have gained a poor reputation for hosting difficult, rowdy, or disorderly tenants, including stag and hen parties – or worse.

For reasons such as these, many lenders will require that any let property – including holiday lets – be let on the basis of an assured shorthold tenancy (AST). The minimum duration for any assured shorthold tenancy is six months, and that period cannot be made up of successive short-term lets – effectively ruling out any Airbnb-style business.

How much deposit will I need for a short-term mortgage?

Just as with any mortgage, you’ll need to contribute a deposit. It shows the lender that you are serious about purchasing the property.

But a deposit also gives the lender an element of reassurance in the event of you defaulting on repayment of the loan and, in the meantime, its value has taken a hit. If you have paid a deposit of 15%, for example, the lender can take comfort from the fact that the value of the property can have dropped by as much as 15%, and they will still be able to recover the full amount of the mortgage advance.

This helps to illustrate the fact that there is a link between the amount of deposit you may need for any particular type of mortgage and the lender’s assessment of risk. The lender will look carefully at the size of any mortgage advance in proportion to the value of the property – the so-called loan-to-value (LTV) ratio of the mortgage.

The lower the LTV, the bigger the deposit you have put down, the greater the share of the property you already own and the less risk that is taken on by the mortgage lender.

In this context, a mortgage on a short-term holiday let property will be considered a higher risk than the standard residential mortgage offered to an owner-occupier. While the latter might be offered a mortgage with an LTV as high as 95% (you only need a deposit to cover the remaining 5% of the purchase price), if you are looking for a holiday short-term let mortgage, the LTV might be as low as 70% to 75%. In other words, the greater risk to the lender of a mortgage for a short-term let property means that you are likely to need a deposit of between 25% and 30%.

What else do I need to consider with a short-term let?

Even if you are successful in raising a mortgage on your holiday let property, remember to check that the freehold is free of any covenants that might prevent its use for short-term lets.

You might also want to confirm the absence of local authority planning restrictions or other regulations that limit your use of the property for short-term lets. In order to protect longer-term rented accommodation for local residents, for example, in London, there is the so-called “90-day rule”. This limits short-term lets of any one property to a maximum of just 90 days a year.

Next steps – Short Term Let Mortgage

Although many property investors have recognised the potential of dwellings used for short-term holiday lets, you might want to do your homework thoroughly before making a purchase.

Specialist holiday let mortgages – even Airbnb mortgages – are available, but be prepared to find a bigger than usual deposit that will typically represent between 25% and 30% of the purchase price.

Before taking the plunge and making such an investment, you might want to consult an experienced broker with expertise in this niche of the mortgage market – such as us here at NeedingAdvice.co.uk.