Financing a rental property
Unless your client is in the position to purchase their rental property in cash, they will need to obtain a mortgage for a short-term let property.
While mortgages for residential Buy-to-Lets are generally widely available across specialist and high street lenders (some with much higher barriers to entry), holiday-let mortgages are more typically only available via specialist lenders like West One, as well as a few select building societies.
Each type of mortgage has its own restrictions. This means that holiday lets and residential BTL mortgages are not interchangeable. If an individual with a residential Buy-to-Let mortgage was renting out their property for short-term holidays. It could be viewed as a breach of the mortgage contract, and in the worst-case scenario could lead to the lender calling in the loan.
With a Buy-to-Let mortgage, the lender will usually be looking at the suitability of the property as an investment and will be looking at the value of the property and the expected rental income. When obtaining a holiday-let mortgage, the lender will also be interested in the location of the property as they assess the viability of the property as a business.
In addition, although a holiday let mortgage may generate higher rental per month, it is important to note that lenders will often assess the suitability of the property, based on its standard private monthly rental when calculating the debt service cover ratio (DSCR).
Furnishing a rental property
Once the mortgage completes the owner will then need to consider furnishing the property. This is where the costs between a residential Buy-to-Let and a holiday-let can vary dramatically.
Residential Buy-to-Let landlords have the option to choose whether they let their property furnished or unfurnished. This will be impacted by the type of tenants they are hoping to attract, with furnished properties more appealing to students or young professionals who do not own their own furniture.
A furnished property is expected to contain kitchen appliances, living area seating, bedroom furniture and curtains/blinds throughout. By keeping the design of these items simple, it will allow tenants to personalise the space themselves.
A holiday let however will need to be furnished to a much higher standard; the finish of the property will impact the premium that the property can demand and will need to provide everything to deliver a home away from home experience. In most cases this will require a larger budget for fixtures, furniture, decoration, appliances, and electronics.
Financial Returns
A holiday let can provide much higher rental yields, as the daily or weekly charge is considerably higher than a residential Buy-to-Let. As at the end of 2025, the average monthly rental of a property in St Ives, Cornwall is £1,236, while the average cost for a week-long holiday rental is around the same price for a single week. Although, the price may increases during peak-times such as summer holiday season.
In some popular hotspots, competition among holiday rentals is high which can result in price wars, driving down the profit margins for the landlord. Holiday-let landlords will also need to account for a potential dip in bookings during low seasons when there is less demand for UK breaks.
A residential Buy-to-Let has the potential to offer the landlord more consistent returns, with seasonality playing no role. However, landlords of residential Buy-to-Lets are more vulnerable to void periods if a tenant leaves with little notice, it might take a while for a replacement tenant to be found. Generally speaking, however, a current lack of housing stock (especially in urban and semi-urban areas), means that rental demand remains high, which helps mitigate that risk.
Another benefit for landlords of residential Buy-to-Lets to bear in mind is that they are able to pass on expenses such as utility bills to tenants rather than eating into their profit margins.
Taxation
One of the historic benefits of owning a holiday let was that it is classed as a business rather than an investment, meaning owners were entitled to certain tax advantages and income generated was classed as ‘relevant earnings’, allowing the landlord to make pension contributions and reduce their tax bill.
In addition, the landlord may have been entitled to claim back the costs for certain improvements to the property, such as energy-efficiency measures.
Many landlords may still choose to transfer their properties to a limited company, which may allow them to benefit from Corporation Tax rates as opposed to potential higher tax rates for individuals. Companies may also deduct allowable expenses including mortgage interest and other financing costs as business expenses before tax, which private landlords, who purchase in their individual names, cannot.
Which option is best?
There are unique benefits to owning either a holiday-let or residential Buy-to-Let. As such, the best option for your client will depend on their goals, what they are hoping to get out of their investment and their appetite for risk.
While a holiday let can require more work and planning, it has the potential to provide much higher financial returns if managed and marketed well.
As each individual’s tax matters are different, for tax advice, your clients may want to seek independent advice from a tax advisor such as an accountant.
How can West One help?
Our comprehensive range of Buy-to-Let products offer options for amateur and professional landlords wishing to purchase or remortgage a residential or holiday let property.
Our expert team are committed to delivering cases with speed and flexibility. We apply an individual approach to underwriting to ensure we review each case on its merits, ensuring we support clients with the smooth and secure purchase or re-mortgage they require.
