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Have you dreamt of owning your own holiday home in Cornwall? If you’re thinking of joining the holiday letting market, financing a holiday home will be the first element to consider.

Cornwall is one of the top five earning regions. With holiday let owners earning an average income of £22,000 per year*. Owning a self-catering property can be a highly rewarding and profitable venture. Take advantage of this lucrative investment opportunity.

Read on for our guide to understanding holiday let mortgages, why they’re a specialist product and what you’ll need to apply for financing a holiday home.

Owner advice | Financing a holiday home

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Mortgage advice when financing a holiday home

What are the different mortgages available for financing a holiday home?

Exterior of a holiday home in the countryside - financing a holiday home

As with most property investments, you’ll need to think about how best to finance your purchase. As well as which option is right for your individual situation. When buying a holiday home, the type of mortgage you’ll need will depend on how you intend to use the property.

  • If your holiday home will be used exclusively for your own use, then you will need a standard second home/residential mortgage.
  • If you intend to let your holiday home out on a regular basis to paying guests, then you will need to apply for a special holiday let mortgage.
  • If your aim is to rent out your holiday home for extended periods, where short and long-term tenancy agreements are set out, you will need a buy-to-let mortgage.

Why do I need a holiday let mortgage?

If you need to borrow funds to finance your investment property, you will need a specialist form of lending. A holiday let mortgage is a tailored form of finance offered to owners who aim to buy a property for the purpose of letting it out, on a short-term basis.

The key difference between a standard and holiday let mortgage is the seasonality of the letting. Holiday lets tend to make most of their money during the peak, summer months and are likely to be for the quieter winter months. Unlike a standard rental property.

Holiday let mortgage lending criteria

Most mortgage providers will assess each case according to various criteria. Your credit history, income, property type as well as any current mortgage commitments will be taken into consideration.

Financing, rates, and requirements all differ between the various lenders. Bear in mind that lenders will require details on your personal expenditure, cross-referencing tax returns and rental bank statements.

What are the costs associated with a holiday let mortgage?

view of the sea from Cedar lounge living area.

The costs associated with a holiday let mortgage vary dependent on a number of factors.

Holiday let mortgage deposits

A mortgage deposit is a cost required when purchasing any property. A holiday let mortgage deposit is based on the property’s worth, location, and income as per a regular mortgage, but the amount required is slightly higher.

The deposit required is normally 25% in relation to the value of the property, compared to the minimum 5% to 10% for standard home mortgages.

This means if you purchase a home worth £350,000 the minimum deposit you will need is £87,500.

Holiday let mortgage interest rates

The interest rate on a holiday let mortgage will typically be higher than on a residential mortgage. Deals offered tend to be on two-year or five-year fixed rates. The interest rate charged will also depend on the rental forecast of your holiday let.

Mortgage lenders will typically expect you to make a gross rental income from your holiday let that is 145% of the mortgage payments, when calculated at 5.5% interest rates.

To get a realistic estimation, it is essential that you get a credible projection from a reputable holiday letting agent, such as Cornish Cottage Holidays. This proof of projected gross rental income, also known as a mortgage support letter, is usually requested by any mortgage lender.

Holiday let stamp duty

When you buy any property in addition to your main residence, be it a second home or holiday let there is an additional Stamp Duty charge known as Higher Rates on Additional Dwellings tax (HRAD).

This starts at 3% and then rises in bands, climbing to 15% for the most expensive properties. Visit the HMRC website for more details.

Do holiday let mortgages cost more?

Yes. Holiday let mortgages tend to cost more as they are a specialised type of lending.

Running a holiday let is highly seasonal business. The income may be irregular and limited to certain times of the year, which poses a higher risk to the lender.

This coupled with fewer companies offering holiday let mortgages means the interest rate will typically be higher than a residential mortgage. There are however certain tax benefits you could claim, which should mitigate this extra cost to some extent. Keep reading to find out more.

Tax benefits of a holiday let mortgage

The benefit of a holiday let mortgage for an owner is that the money received from its rental is classed as a business income. Meaning there are a number of tax benefits that are available if it’s run as a Furnished Holiday Let. As long as you meet the criteria set out by the HMRC.

To qualify as a Furnished Holiday Let, you’ll benefit from the opportunity to deduct certain expenses from your income before tax. You are also able to offset the interest you pay on your holiday let mortgage against your holiday let income.

There are other tax relief schemes that you can benefit from, including Business Rates Relief, Capital Gains Tax and more.

How to qualify as a Furnished Holiday Let

luxury bedroom interiors - headboard, lamp, side table and cushions - furnished holiday let.

For a property to qualify as a furnished holiday let, it must be available for letting as furnished holiday accommodation for at least 210 days per year. And it must be booked for at least 105 days per year.

That still leaves the remaining 22 weeks of the year for you to enjoy your holiday home.

For more important information on what is needed to qualify, refer to our guide on tax for furnished holiday lets.

FAQs – Financing a holiday home

Is it difficult to get financing for a holiday home?

The variation in seasonal rental income from holiday lets makes them more of a risk for a mortgage provider, which means the criteria will be much stricter.

But the good news, is that a holiday let is likely to receive a higher rental yield than that of a normal residential property. This means that, provided you can let it out regularly, you could generate a much bigger income.

Where can I apply for holiday let finance?

While holiday let mortgages are growing in popularity, they are still a niche product. They are provided by smaller building societies rather than standard ‘high street’ banks. This may limit the lending options available, but it is still important to ask for the best deal that will work for you.

A holiday let mortgage specialist like AFWM – Atkins Ferrie Wealth Management can offer professional advice and improve your chances of finding the right deal.

Cornwall holiday let mortgage specialist

We understand that the complexities of securing financing for your holiday home might be daunting, so we always advise seeking information from a trusted holiday home mortgage provider.

It is possible to manage the process yourself. But we highly recommend professional mortgage advice from an independent mortgage expert at AFWM – Atkins Ferrie Wealth Management.

Atkins Ferrie Wealth Management is a South West based Independent Financial Adviser. They offer the highest ethical principles and best service standards available from any independent adviser in the UK.

AFWM have offices in Helston, St Agnes and St Ives. Their mortgage team help many clients achieve their ambitions of owning one, or multiple holiday homes in the stunning coastal and countryside setting of Cornwall.

Is buying a holiday let in Cornwall a good investment?

View of mullion beach from valley view holiday let.

Buying a holiday home in Cornwall is for many an aspiration. So, having the opportunity to own a holiday property as well as lucrative letting business is an obvious appeal.

The staycation sector continues to go from strength to strength. With 2022 bookings currently up 35% compared to pre-pandemic levels, and 84% of our owners saying bookings are stronger than ever.

The lure of our beautiful isles and excellent holiday accommodation has persuaded many to holiday in the UK, rather than travelling abroad.

We expect this trend to continue over the next five years, so what better time to invest in a holiday let in Cornwall?

For further expertise advice and knowledge, read our blog ‘thinking of buying a holiday home in Cornwall’.

Choosing a holiday letting agency in Cornwall

choosing a cornwall holiday let agency - patio and outdoor area in summer.

There are many factors to consider when investing in a holiday let. Including the costs, finding the best locations to buy a property, rental rates and what your property is going to look like.

Finding the right holiday letting agency in Cornwall for expert advice and support can make all the difference to help you achieve holiday let success.

Partnering with a team of industry experts like Cornish Cottage Holidays, who specialise in the self-catering holiday market is key to your property’s earning potential and overall success. Read more about what to know when choosing a holiday letting agency in Cornwall.

We want letting your holiday home to be as enjoyable and effortless as possible, so we’ve created some help guides to answer any queries that you may have.

Request your FREE owner’s pack or give us a call on 01326 336773 (option 2) today.

At the time of publishing, Cornish Cottage Holidays has taken all reasonable care to ensure that the information contained in this article is accurate. However, no warranty or representation is given that the information is complete or free from errors or inaccuracies. Generic information is contained within this article and each individual’s financial affairs are different, further advice should be sought from a mortgage broker.

* Statistics from Sykes Cottages Owner research 2022 and Staycation Index 2021.