Holiday Let Mortgage Calculator

## Complete Guide to Holiday Let Profitability Analysis

Holiday lets represent a distinct investment strategy within UK property, offering potentially higher returns than standard buy-to-let but with greater complexity and operational demands. This comprehensive guide explains how to accurately assess holiday let profitability, understand the unique financing landscape, and evaluate whether this investment type suits your goals.

### Understanding Holiday Let Income: Beyond Simple Rent

Unlike buy-to-let properties with consistent monthly rent, holiday let income fluctuates based on multiple factors. Accurately projecting income requires understanding these variables.

Weekly Rates vs Annual Income

Holiday lets are typically priced per week or per night, with rates varying significantly by season:

- Peak season (school holidays, Christmas, Easter): Premium rates, often 50-100% higher than off-peak - Shoulder season (spring/autumn weekdays): Moderate rates - Low season (January-February, November): Reduced rates to attract bookings

A property charging £1,200/week in August might only achieve £500/week in November. Your projected weekly rate should be an annual average accounting for this variation.

Occupancy Rates: The Critical Variable

Occupancy is the single most important factor in holiday let profitability. UK averages vary significantly:

- Premium locations (Cornwall, Lake District, Cotswolds): 55-75% occupancy - Good locations (coastal towns, national parks): 45-60% occupancy - Average locations: 35-50% occupancy - New listings: Often 30-45% in year one, building to full potential over 2-3 years

Occupancy is measured as the percentage of available weeks that are booked. At 65% occupancy, a property is let for approximately 34 weeks per year.

### Step-by-Step Income Calculation

Step 1: Calculate Gross Annual Income

Average Weekly Rate × Occupied Weeks = Gross Income

Example: £850/week average × 34 weeks (65% occupancy) = £28,900 gross annual income

Step 2: Deduct Running Costs

Holiday lets have significantly higher operating costs than standard BTL, typically 30-40% of gross income:

| Cost Category | Typical Range | Example (£28,900 gross) | |--------------|---------------|------------------------| | Cleaning & changeovers | 10-15% | £3,468 | | Utilities (incl. council tax) | 5-8% | £1,734 | | Platform fees (Airbnb, etc.) | 3-15% | £2,890 | | Maintenance & repairs | 5-10% | £1,445 | | Insurance | 2-3% | £578 | | Linen & supplies | 2-4% | £578 | | Marketing & photography | 1-3% | £289 | | Total Operating Costs | 30-40% | £10,982 (38%) |

Net Operating Income = £28,900 - £10,982 = £17,918

Step 3: Deduct Mortgage Costs

On a £350,000 property with 25% deposit (£262,500 mortgage) at 5.5% interest: Annual mortgage payment = £262,500 × 5.5% = £14,437

Step 4: Calculate Annual Profit

Annual Profit = Net Operating Income - Mortgage Costs = £17,918 - £14,437 = £3,481 profit

Monthly profit: £290

### Understanding Break-Even Occupancy

Break-even occupancy is the minimum occupancy needed to cover your mortgage. This is crucial for assessing risk.

Formula: Break-even Occupancy = (Annual Mortgage + Fixed Costs) ÷ (Net Income per Occupied Week × 52)

If your mortgage costs £14,437/year and you have £3,000 in fixed costs regardless of occupancy: Required net income = £17,437 Net income per week (after variable costs) = £850 - £200 = £650 Break-even = £17,437 ÷ (£650 × 52) = 51.6% occupancy

This means if occupancy drops below 52%, you're making a loss. A healthy buffer is achieving 15-20% above break-even.

### Holiday Let Mortgage Specifics

Holiday let financing differs from standard BTL in several important ways:

Deposit Requirements - Minimum: 25% (75% LTV) - Competitive rates: 35-40% deposit - Some lenders: 30% minimum for holiday lets specifically

Interest Rates Holiday let rates typically carry a 0.5-1% premium over equivalent BTL products due to perceived higher risk and operational complexity.

Income Assessment Lenders assess holiday let income differently:

1. Projected income basis: Some lenders accept your projected figures with supporting market research 2. Standardised assumptions: Others use formulaic calculations (e.g., 30 weeks at comparable rates) 3. Existing track record: If buying an established holiday let, historic income carries weight 4. Professional valuations: Some require a valuation that includes income assessment

Lender Requirements - Evidence of comparable letting income in the area - Marketing plan or booking platform listing - Some require minimum distance from your home (preventing personal use claims) - Professional management arrangement may be required

### Furnished Holiday Let (FHL) Tax Status

Meeting HMRC's FHL criteria unlocks significant tax benefits. Requirements (as of 2024):

1. Available for letting: 210+ days per year 2. Actually let: 105+ days per year 3. Longer-term lets: No single let over 31 consecutive days that total more than 155 days

Tax Benefits of FHL Status:

- Full mortgage interest relief: Unlike Section 24 restrictions on BTL, FHLs can deduct full mortgage interest from profits - Capital allowances: Claim tax relief on furniture, equipment, and fixtures (10-18% of furnishing costs annually) - Business Asset Disposal Relief: Pay 10% CGT on sale (up to £1m lifetime limit) vs 18-28% for standard BTL - Pension contributions: Rental profits count as "relevant earnings" for pension contribution limits - Loss relief: Can offset losses against other income in certain circumstances - Business rates option: May reduce costs vs council tax in some areas

Warning: The government has announced changes to FHL tax rules. Always verify current legislation with a tax advisor.

### Key Performance Metrics for Holiday Lets

Gross Yield Gross Annual Income ÷ Property Value × 100 Example: £28,900 ÷ £350,000 × 100 = 8.26%

Net Yield Net Operating Income ÷ Property Value × 100 Example: £17,918 ÷ £350,000 × 100 = 5.12%

Cash-on-Cash Return Annual Profit ÷ Total Cash Invested × 100 Example: £3,481 ÷ £87,500 (deposit) × 100 = 3.98%

DSCR (Debt Service Coverage Ratio) Net Operating Income ÷ Annual Mortgage Payment Example: £17,918 ÷ £14,437 = 1.24x

Lenders typically require 1.25x minimum DSCR.

### Comparing Holiday Let vs Standard BTL

| Factor | Holiday Let | Standard BTL | |--------|-------------|--------------| | Gross yield | Higher (7-12%) | Lower (5-7%) | | Running costs | High (30-40%) | Low (10-15%) | | Management time | Significant | Minimal | | Income stability | Variable | Consistent | | Void risk | Seasonal | Tenant-dependent | | Capital growth | Location-specific | Market-driven | | Tax benefits | FHL advantages | Section 24 impact |

### Location Considerations for Holiday Lets

Prime UK Holiday Let Locations:

1. Cornwall - Highest demand, premium rates, strong year-round appeal 2. Lake District - Activity tourism, strong shoulder seasons 3. Cotswolds - Weekender market, premium clientele 4. Scottish Highlands - Growing popularity, wildlife tourism 5. Welsh Coast - Value market, strong domestic demand 6. Peak District - Year-round outdoor activities 7. Norfolk Coast - Family market, accessible from London

Location Factors to Assess: - Distance from major population centres - Local attractions and activities - Competition density (check Airbnb saturation) - Seasonal patterns (year-round vs summer only) - Accessibility (parking, public transport) - Planning restrictions on holiday lets

### Risk Factors to Consider

Occupancy Risk: Income is directly tied to bookings. Economic downturns, weather, and increased competition affect occupancy.

Operational Demands: Managing changeovers, guest communications, maintenance, and reviews requires significant time or professional management (reducing profits).

Regulatory Risk: Some areas (notably in Scotland and Wales) have introduced licensing and restrictions on short-term lets.

Platform Dependence: Reliance on Airbnb or Booking.com creates fee pressure and policy risk.

Seasonal Cash Flow: You may face months of negative cash flow in low season while covering fixed costs.

### Making Your Decision

Use this calculator to model different scenarios:

1. Conservative case: 50% occupancy, 40% running costs 2. Base case: 60% occupancy, 35% running costs 3. Optimistic case: 70% occupancy, 30% running costs

If the conservative case still shows positive cash flow and break-even occupancy is comfortably below your realistic expectations, the investment may be suitable. If you need optimistic assumptions to make the numbers work, reconsider or look for better opportunities.