Categories: holiday lets | guides

Before you decide to get a holiday let mortgage, you may be curious about the amount of deposit you will have to put down.

Holiday let mortgage lenders offer products with a maximum LTV of 80%, but there are reasons why you may want to put down more than a 20% deposit. Read on to find out why.

What is the minimum deposit on a holiday let mortgage?

Paying a deposit to a lender shows your willingness to share some of the risk that comes with a mortgage agreement.

Most lenders will, at minimum, request a 25% deposit, so a quarter of the property’s value. For most, the range is typically between 25% and 30%, but there are some that may request a higher deposit than that. There are instances where a 20% deposit may be possible.

No cash deposit?

In the event that you don’t have the funds for a cash deposit to hand, there’s an effective solution available, if you own other properties.

You can borrow against the equity in those properties to raise a deposit for the holiday let mortgage. This can be done in a number of ways:

  1. If you have no mortgage on the other property you own, you can take one out to raise a cash deposit for your holiday let property.
  2. If you have a mortgage on the other property you own, you can ask your lender if they would allow a ‘second charge’ to be placed on the property. Then you can take out a second charge mortgage on the property, which sits alongside your existing mortgage.
  3. If you have a mortgage on the other property, you may be able to remortgage it and increase your borrowing to generate a cash deposit to buy your holiday let property. If you are within the initial rate period of your mortgage early repayment charges may apply, so again a second charge mortgage may be a better option.

For these alternative means of securing holiday let mortgages, it’s always important to take great care so that you do not overstretch yourself financially. Handling this process carelessly could increase your exposure to debt or put your property portfolio at risk.

Similarly, you can seek the help of others and receive a gifted deposit. This can be from a family member, or in some instances, another trusted third party. Lenders will want to see signed and documented proof of this kind of deposit.  

Reasons for higher deposits

For landlords familiar with buy to let mortgages, it might initially seem strange that lenders appear to treat holiday let mortgages and their deposits differently, but there are straightforward explanations for this difference in approach.

In contrast to standard buy to lets, holiday lets have a less consistent income stream than from regular tenants. The waxing and waning nature of holiday lets, with many dipping in popularity depending on the season, mean that lenders have to be careful when offering a mortgage.

However, there are benefits to larger deposits. Namely, the bigger the deposit, the lower your mortgage interest rates will typically be. So, if you put down a deposit of 40% of the property’s value, you will feel the long term relief of lower monthly payments over the course of the mortgage.

Finding the best deals with your broker

If you have a 20-25% deposit or more, and you feel ready to discuss getting a holiday let mortgage, get in touch with us. 

Once you call in, your assigned advisor and account manager will be able to help you through every stage of the application process. Contact Commercial Trust today.