Holiday Let Mortgages: Rates, Rules, and the FHL Tax Change

Holiday lets have had a complicated few years. The short-term rental market boomed during the pandemic staycation surge, and for a period it was genuinely one of the most attractive property investment models available in the UK — partly because of returns, partly because of a tax regime that treated holiday lets more generously than standard rentals.

That tax regime no longer exists. From April 2025, the Furnished Holiday Let classification was abolished, and the economics of holiday letting changed materially for many investors. The mortgage market, meanwhile, has its own distinct rules for how it assesses and lends on holiday let properties.

Here is what you need to know if you are considering a holiday let purchase or already have one.

What Is a Holiday Let Mortgage?

A holiday let mortgage is a specialist product for properties let on a short-term furnished basis — typically to tourists and visitors on bookings of days or weeks, rather than to residential tenants on six- or twelve-month assured shorthold tenancies.

The distinction from a standard buy-to-let mortgage is significant:

• Income pattern: Holiday let income is seasonal and irregular; BTL income is typically a consistent monthly AST payment
• Property use: Holiday lets are furnished and equipped as full holiday homes; BTL properties need not be furnished
• Assessment method: Lenders use projected occupancy income, not a rental yield based on AST values
• Owner use: Many holiday let mortgages permit the owner to use the property personally; BTL mortgages explicitly prohibit personal occupation

Using a standard BTL mortgage on a property that is actually operated as a holiday let is a breach of mortgage terms. Lenders who discover this can demand immediate repayment. If you are operating short-term lets, the mortgage product needs to match.

The FHL Tax Abolition: What Changed in April 2025

The Furnished Holiday Let regime was a specific HMRC classification providing significant tax advantages for properties that met occupancy thresholds. It was announced as abolished in the Spring Budget 2024, and the abolition took effect from 6 April 2025.

What FHL Status Previously Offered

Before abolition, properties meeting the FHL qualifying conditions benefited from:

• Full mortgage interest deductibility against profits — unlike standard BTL, which is now subject to Section 24 (the 20% basic-rate credit restriction introduced in 2017–2020)
• Capital Gains Tax entrepreneurs' relief (now Business Asset Disposal Relief) on sale — meaning CGT at 10% rather than 18–24% for qualifying disposals
• Capital allowances on furniture, fittings, and equipment within the property
• Pension contribution calculations could treat FHL profits as relevant UK earnings — a valuable planning point for higher earners

The qualifying conditions required the property to be available for letting for at least 210 days per year, actually let commercially for at least 105 days, and located in the UK or EEA.

The Post-April 2025 Position

Holiday let income is now taxed identically to standard rental income:

• Section 24 applies: Mortgage interest is no longer deductible from profits. Higher- and additional-rate taxpayers receive only a 20% basic-rate tax credit against mortgage interest costs — the same restriction that applies to standard BTL landlords
• No CGT entrepreneurs' relief: Sales of holiday let properties are now subject to standard CGT residential property rates (18% basic rate, 24% higher rate)
• No capital allowances: Furniture and fittings in a holiday let are no longer eligible for capital allowances under the rental income rules

For a higher-rate taxpayer with a significant holiday let mortgage, the abolition of FHL status meaningfully increases the effective tax burden on profits. Some properties that were commercially viable on FHL economics are less so under the new regime, particularly where the mortgage debt is substantial.

How Lenders Assess Holiday Let Income

Holiday let underwriting is different from both residential and standard BTL assessment, because the income is irregular and cannot be verified against an existing AST.

The Rental Income Projection

Most holiday let lenders require a specialist letting agent's rental income assessment before they will lend. This is a report projecting likely annual gross income based on comparable properties in the same area and market. The assessment considers:

• Location and property type
• Number of bedrooms and occupancy capacity
• Seasonal demand pattern for that area
• Comparable local holiday let performance
• Likely average nightly rate and occupancy percentage

The lender then applies a coverage ratio to the projected annual income. This is similar to the interest coverage ratio (ICR) testing used in standard BTL, but applied to projected rather than actual income.

Interest Coverage Ratio

Holiday let lenders typically test at 125–150% ICR against a stress rate of 5–5.5% — meaning the projected annual income, after the coverage ratio, must exceed the mortgage interest at the stress rate by the required factor.

Some lenders also require evidence that the borrower's personal income can support the mortgage if holiday occupancy falls short of projections. Given the seasonal and discretionary nature of holiday let income, this secondary income test provides additional security against low-occupancy years.

Lender Criteria Summary

LTV limits are lower than standard BTL because the income stream is less certain, and because holiday let properties can be more volatile in value than standard residential stock.

Holiday Let vs Standard BTL: The Key Differences

The lender panel for holiday let mortgages is noticeably smaller than for standard BTL. Specialist lenders and building societies are more prominent — high-street banks are generally less active in this market.

Airbnb and Short-Let Platform Complications

The growth of Airbnb, Sykes Cottages, Vrbo, and equivalent platforms has complicated the holiday let mortgage market in several ways.

Lender Eligibility

Many holiday let lenders require the property to be managed through a professional letting agent rather than exclusively through owner-managed platforms. The reasoning: a professional letting agent provides the lender with a verifiable income assessment, a track record of comparable bookings, and a layer of management oversight.

Some lenders have become more comfortable with Airbnb-managed properties where the owner can demonstrate a track record of bookings and consistent income. Others remain cautious. The picture is improving but varies considerably by lender.

If the plan is to self-manage exclusively via Airbnb, the number of willing lenders is smaller. A broker with current knowledge of each lender's position is the most efficient way to navigate this.

Platform Dependency Risk

Lenders are increasingly aware that income projections based on Airbnb performance can be affected by algorithm changes, increased local competition, platform fee increases, or review score fluctuations. Income that looks consistent based on two or three years of history may not reflect what the platform does next. Some lenders apply haircuts to Airbnb income projections accordingly.

Planning Permission

Short-term letting rules are tightening in many areas. Since 2017, London properties have required planning permission for short-term lettings exceeding 90 nights per year under the Greater London Authority Act 1991. Other local authorities are introducing similar restrictions as they respond to housing supply concerns.

A property operating above its permitted short-let threshold faces potential enforcement action. Lenders conducting due diligence on holiday let applications are increasingly aware of this risk — particularly in areas with active planning enforcement. Always confirm the planning position before proceeding.

Insurance

Standard buildings and contents insurance does not cover short-term holiday letting. Specialist holiday let insurance covers:

• Public liability for guests
• Accidental damage by guests
• Unoccupied property periods
• Some policies include loss of income from cancelled bookings

This is a distinct product from standard landlord insurance. Using the wrong insurance product invalidates cover.

Consent to Let vs Holiday Let Mortgage

If you own a residential property and want to rent it out on a short-term basis — whether while you are away, or as a test before converting to a dedicated holiday let — you may consider applying for consent to let from your residential mortgage lender rather than switching products.

Consent to let is a temporary permission to rent out a property under a residential mortgage. Most lenders grant it for a limited period (often 6–12 months). Using a residential property as a permanent short-term holiday let without proper consent is a breach of mortgage terms. The consent to let guide covers this in more detail.

For properties intended as permanent holiday lets from the outset, a dedicated holiday let mortgage is the appropriate product from day one.

The Impact of FHL Abolition on Property Values

There is a secondary effect worth considering for anyone buying or selling holiday let property in established tourism markets. FHL status previously created a buyer pool willing to pay a premium for properties in areas with strong tourist demand, because the tax economics made them attractive as holiday let investments.

As that tax advantage has been removed, demand from investment buyers may soften. Whether this translates to lower property values in holiday let hotspots depends on the balance of investment buyers versus owner-occupiers in each market. In areas like the Lake District or Cornwall where second-home and holiday let buyers are significant market participants, the shift in tax economics is worth factoring into purchase price assumptions.

Practical Steps for a Holiday Let Mortgage

1. Commission a rental income assessment from a specialist local letting agent early — this document is central to the mortgage application
2. Confirm the planning position — verify whether your intended use requires planning permission and that the property has any relevant permissions in place
3. Check the EPC rating — and understand the current and proposed minimum requirements for short-term letting
4. Arrange specialist holiday let insurance before completion
5. Model the numbers on post-FHL economics — include Section 24 in your profitability calculations, not the old FHL tax treatment
6. Use a specialist broker — the lender panel for holiday lets is specialist, and criteria on Airbnb acceptance vary considerably

How Bridging Finance Connects to Holiday Let Purchases

Holiday let properties in popular tourism areas can attract competitive interest. Completing quickly — particularly at auction or when a seller needs a fast transaction — may not be possible through a specialist holiday let mortgage, which requires a rental income assessment and longer processing times.

Bridging finance is sometimes used to secure a holiday let property quickly, with the plan to refinance onto a holiday let mortgage once the bridge is in place and the letting agent's income assessment has been completed. This adds cost but solves the timing problem for time-sensitive purchases. The exit strategy in this scenario must be clear: the bridging loan can only be repaid once the holiday let mortgage is in place, which means confirming lender appetite for the specific property and location before committing to the bridge.

The Bottom Line

Holiday let mortgages occupy a distinct niche: more specialist than standard BTL, smaller lender panel, lower LTV limits, and a different income assessment methodology. The abolition of FHL tax status in April 2025 removed a significant financial advantage that had made holiday letting attractive to higher-rate taxpayers, and the economics for some existing and prospective holiday let investors need fresh assessment.

For the right property in the right location with strong, demonstrable letting demand, holiday let mortgages remain available and workable. The paperwork is more involved, the lender shortlist is shorter, and the tax picture is now less favourable — but the product exists and experienced brokers know how to navigate it.

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This is educational content, not financial advice. Your situation is unique — speak to a qualified mortgage broker before making any decisions.