How Holiday Let Lenders Assess Rental Income
Holiday let mortgage lenders cannot use a straightforward rental coverage calculation based on a fixed monthly rent because holiday lets do not have a single long-term tenant paying a set monthly sum. Instead, lenders typically rely on a rental income projection prepared by a specialist holiday letting agent who knows the local market. The projection estimates achievable income based on occupancy rates across peak, shoulder, and off-peak seasons, and the lender then applies a stress test to that figure — often using 125% to 145% of the projected income at a notional interest rate.
Some lenders require a minimum occupancy projection rather than a minimum income figure. They want to see that the property is lettable for enough weeks per year to generate adequate cover. Properties in strong holiday locations — coastal areas, the Lake District, the Cotswolds, and similar tourist destinations — tend to receive more favourable projections. Properties in locations with very short peak seasons or weaker demand may find income projections come in lower and lender appetite is reduced.
Where a property has an established letting history, lenders will often look at actual income earned over the previous 12 to 24 months alongside the projection. Consistent, demonstrable income from a reputable letting agent or platform provides stronger evidence than a projection alone. Keep bank statements showing rental receipts, booking confirmations, and any management accounts the letting agent provides — all of these support a strong application.
Some holiday let lenders also allow borrowers to use their personal income to support affordability calculations on a top-slice basis, which can be particularly helpful where the property is in an early stage of lettings or where projected income alone falls slightly short of the lender's coverage requirement. Not all lenders offer this flexibility, so it is worth asking your broker which products allow it.
HMRC Furnished Holiday Let Rules: Pre and Post April 2025
Until April 2025, properties that qualified as Furnished Holiday Lettings under HMRC rules received a set of significant tax advantages not available to standard buy-to-let landlords. These included the ability to deduct finance costs — including mortgage interest — in full against rental income rather than receiving only a 20% tax credit, access to capital gains tax reliefs including Business Asset Disposal Relief and rollover relief, and the ability to treat FHL income as earnings for pension contribution purposes.
To qualify as an FHL under the old rules, a property had to be available for commercial letting for at least 210 days per year, actually let for at least 105 days, and not occupied by the same guest for more than 31 consecutive days for more than 155 days in total. If these tests were met, the property was classified as a Furnished Holiday Let for tax purposes.
From 6 April 2025, the HMRC FHL regime was abolished and holiday let properties are now taxed as standard property income alongside other buy-to-let assets. This means the mortgage interest restriction — limiting tax relief to the basic rate — now applies to holiday lets, as it does to standard BTL property. Capital gains tax reliefs that were specific to FHL status are no longer available going forward, though transitional arrangements may apply in certain cases. Landlords who previously relied on full mortgage interest relief have seen their net income position change materially.
Despite the abolition of FHL tax status, lenders still offer dedicated holiday let mortgage products that are structured around the short-term letting model. The absence of FHL tax status does not prevent you from letting your property on a short-term basis or from obtaining a holiday let mortgage — it simply changes the tax treatment of the income you receive. Speaking with a tax adviser alongside a mortgage broker is advisable to ensure your letting business remains financially viable under the new rules.
