Holiday Let Income and Affordability Assessments

Stress-testing holiday rental income

Every lender uses their own model, but most follow a similar structure. They may examine:

Seasonal patterns – lenders may make assessments based on a high-medium/low weekly average over a set number of weeks.

Occupancy assumptions – typically 26-42 weeks, often lower than the figure estate agents or owners might expect in real life.

Average nightly rates – based on conservative market data for the location and property type, not your top-end pricing.

Running costs and gaps – cleaning, management fees, cancellations, winter repairs etc are all factored in.

Lenders will usually ask for a letter from a professional holiday letting agency projecting the income.

The result is a stress-tested income figure that aims to represent a realistic annual return, not the maximum that you could theoretically earn.

Your personal income

Unlike a traditional buy-to-let, holiday let lending often leans on your personal financial strength.

Most lenders want to know:

• Your salary or self-employed income
• How comfortably you could cover the mortgage during a quiet season
• Whether you have financial buffers or savings
• What other financial commitments you juggle e.g. school fees or other mortgages

It’s a hybrid of holiday rental income plus your personal affordability, with some lenders using surplus personal income to cover any shortfall in projected rental income (known as ‘top-slicing’). That’s why two buyers looking at the same property may be offered very different borrowing amounts.

Existing mortgages or portfolio

For existing landlords or those with multiple properties, lenders will broaden the net.

They may look at:

• Current mortgage payments across your whole portfolio
• Profitability of your existing properties
• Rental coverage ratios
• How leveraged you already are (how much you already borrow compared to the value and ownership of your properties – the more you borrow, the more cautious a lender will be when deciding how much they’re comfortable lending for a new venture)
• The variety of lenders you already use

This helps them ensure that the holiday let doesn’t stretch your finances too thinly, even if the new property looks strong on its own.

Bringing it all together

Holiday let affordability is a blend of:

1. Holiday rental projections
2. Stress-tested income assumptions
3. Your personal income
4. Your debts and commitments
5. Your existing mortgage portfolio

It’s a bespoke calculation, which is why it’s important to speak to an adviser who understands your personal circumstances and the holiday let lending landscape.

At Thickbroom Mortgages, we look at the property and location, your goals and the lender criteria across the whole market to work out what’s achievable.