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In recent years, the so-called 'staycation' has risen in popularity. With people instead seeing what the UK has to offer instead of jetting away, holiday homes have been brought to the forefront of everyone's minds. Maybe you have bought a holiday home to let out when you aren't staying there? Or perhaps you are considering purchasing one from a pure investment standpoint.

No matter your reason for buying a holiday home and capitalising on the staycation trend, there is a lot to consider when it comes to the world of holiday home rentals.

In this blog post, we are going to be looking at holiday let mortgages, how a holiday house can benefit your rental income, the effect capital gains tax can have on your profit, and what to do when it times to sell...

What is a holiday home?

A holiday home is holiday accommodation that is either used by yourself and your family or is rented out to tourists. It is usually situated in a popular holiday destination, such as Cornwall.

In order for your holiday let to be counted as such, it must be available to let for at least 210 days a year, leaving you 22 weeks to enjoy it yourself if you so desire.

The popularity of holiday homes comes from that you can pay your mortgage from the rental income.

What is a holiday let mortgage?

If you are looking to let out a property on a short-term basis to tourists as a business, chances are you will need a holiday let mortgage in order to do so. It will allow you to purchase a property that you may use from time to time for personal use but will mainly be rented out to tourists for a profit.

This differs from a holiday home mortgage where the money you borrow will be used to purchase a holiday home that only you will use. It is also different from a buy to let mortgage that is let out on a long-term basis rather than to those just visiting.

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What is the difference between a holiday let mortgage and a buy to let mortgage?

Deciding whether to invest in a holiday let or buy to let is a decision that should not be taken lightly. As whilst they are sometimes confused, a buy-to-let property mortgage and a holiday-let mortgage are two different beasts.

As we have already discussed, buy-to-let is a more permanent type of housing rather than a UK holiday property. The appeal of holiday houses is that as you are letting them out for shorter periods of time for those who are on holiday, you can rent them out for a lot more than you could a buy-to-let property.

How to get a mortgage for a holiday let?

If you decide to purchase a holiday home to let out, you may need to borrow the money in order to do so. You will be in need of a specialist mortgage as traditional residential mortgages will not allow you to let, and a buy-to-let mortgage may not be suitable for your needs.

A holiday let is a type of mortgage that will allow you to rent out your home for a short amount of time. You should talk to your mortgage broker or mortgage advisor in order to find out more about lenders and the mortgage interest rates involved.

The amount that a lender will lend is based upon a projected income figure rather than a simple multiple of potential income. The amount of income you earn will also be taken into consideration by your lender as they will need reassurance that you will be able to cover the mortgage should the property be unoccupied.

Furnished holiday let and tax relief

If your holiday let is furnished, then you will be treated more favourably when it comes to taxes. Furnished holiday accommodation is classed as a business and as a result, you can claim tax relief on mortgage interest. This makes a change from the buy-to-let market where tax breaks are currently being reduced.

Do you pay stamp duty when buying a holiday let?

When it comes to renting out a holiday let, there are tax rules that you will need to be aware of. When you buy a holiday home, you will fall into the criteria for a higher rate of stamp duty. This means that you will have to pay an extra 3% of your property purchase price. A higher rate of stamp duty surcharge works as slab tax, rather than standard stamp duty which is applied on a tiered basis instead.

Does a holiday home count as a second home?

Whether or not your holiday home is classed as a second home depends upon how much time you will be spending it. If you plan to spend half of the year in your holiday home, then it will be classed as a second home. A second property will be a significant distance away from your main place of residence and has its own set of requirements that would need to be met.

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Is it worth buying a property for a holiday let?

Whether or not is it worth buying a property for a holiday let is down to your own personal circumstances. Whilst there are plenty of benefits to letting out a holiday cottage or home, it also comes with its downsides as well. Below we have broken down some of the positives and negatives of owning a holiday home in the UK.

Advantages of a holiday let

Income potential

A holiday let investment is a popular choice as it provides an opportunity for extra income that is relatively low risk provided it is done correctly.

As we have already mentioned, one of the biggest advantages of renting out a holiday property is that you can charge a higher rate than you could with a regular buy to let property. If you average 30 weeks of occupancy a year, then your let can produce a healthy return on investment.

According to data collected by Sykes, in May 2022 the average turnover of a holiday let in the UK was £24,000.

Tax breaks

As we have already mentioned, furnished lets class as a business so you will qualify for tax advantages compared to regular buy-to-let investors. Some examples of the advantages you can get include:

Increased demand

There has been an increase in demand for holiday let properties in the last few years. The popularity of staycations has helped fund UK holidays holiday accommodation business, and has opened up people's minds to a new way to generate extra income.

With more people looking to ditch the long flights and waits at security in favour of a homegrown holiday, there has never been a better time to get involved.

Helping hands

Another advantage is that if you feel running a holiday let is too much work, you are able to hire a holiday cottage agency to take over for you. For 25% of your rental income, they will take care of bookings, changeovers, and maintenance. However, this is not always the most popular option as it does eat into profits.

Disadvantages of a holiday let

Inconsistent Income

One of the biggest downsides to investing in a holiday home is that it is not a consistent form of income. Which can be a problem, especially if you have mortgage payments to make for the property.

Whether or not you will be able to make a profit in your first or second year will be reliant on a variety of factors such as how much competition is in the area and your rental prices.

You will need to be wary that you may not be fully booked for the whole calendar year, so there may be times when you get no income at all but will still need to make the mortgage repayments.

Management costs

You will also need to factor in the costs for marketing and management, which you may find will eat away at your rental costs. Whilst these costs will eat away at your profit, they are necessary for the success of your let.

In order to attract customers to your holiday rental, you will need to use an advertising service such as Vrbo and Airbnb, and as you build up more customers you can use social media or your own website to promote it.

If you decide to use an agent to manage your bookings and for customer service, then you will need to be aware that you can end up paying up to 25% of rental payments to them as well as a £50 charge per call out should something go wrong.

Continuous investment

When you’re buying a holiday home, you need to be aware that it is a continuous investment. This means that costs are high as you are going to be responsible for utility bills, gardening, cleaning, pool maintenance (if you have one), mortgage repayments, insurance, and council tax.

You will also need to budget for the maintenance costs that come with owning a holiday let. You will be paying for repairs and replacements for damaged or broken items within the let.

Another element you will need to factor in is travel costs if your holiday let is located far away from your primary residence.

Unruly guests

Another downside to buying a holiday cottage that you need to be aware of is that you are relying on the decency of other people to leave your holiday cottage as they found it. Guests may ruin furniture and possessions inside of the house, or you may be stuck with high-maintenance guests who demand too much.

Council tax

If your property does not qualify for business rates, then you will find yourself having to pay council tax. The rate of tax that you will have to pay will depend upon where you are. Councils have started charging more for council tax for second homes, such as in Wales, where the maximum they can charge is 300%.

Red tape

Holiday homes are not always the most popular with local councils and residents, so you may find yourself dealing with unexpected restrictions or red tape. A lot of councils have proposed changes such as a restriction on people buying holiday homes, tax changes, and licensing schemes.

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Is it worth buying a property for a holiday let?

Fed up with the holiday lets trend? Or maybe you are ready to try a new investment venture? If you find yourself with a holiday let that you no longer wish to keep, then you have come to the right place. Here at The Property Buying Company, we offer a fast, free solution to your unwanted holiday let, leaving you with more time and money to do the things you love.

As a sell house fast company, we can sell your buy-to-let holiday home in as little as little as 7 days, however, we can appreciate that not everyone wants to sell their property within the week. That's why we work to a timescale that suits you, whether that is in as little as 7 days or as long as 3 months.

We are also proud members of the National Association of Property Buyers and The Property Ombudsman, as well as being rated excellent on Trustpilot.

In order to sell your buy to let properties, we will only require one quick viewing to make sure that our cash offer is correct. After you have accepted our offer, that is the amount you will get in FULL in your bank.

With over 50 years of combined experience, we will buy any house, in any location, in any condition, taking the stress out of house sales. Plus, we cover all fees for you - even the legal ones!

Looking to sell your holiday home? Then give us a call today or fill in our online valuation form to receive a no-obligation CASH offer which we could have in your bank in as little as 7 days...

Alexandra Ventress

Alexandra is a Content Producer who enjoys writing articles, finding out about the property market, keeping you up to date with the latest trends.