How much can I borrow?

How the borrowing calculator works

On a holiday let, lenders size the loan from the projected short-let income, not just the price. That income is built from the nightly rate and the occupancy you can realistically achieve across the year, and the lender applies an interest cover ratio. We take your projected annual income figure and divide by the cover ratio to find the maximum annual interest the deal can service. We then divide that by the interest rate to find the indicative maximum loan.

The formula is maximum annual interest equals projected annual income divided by the cover ratio over one hundred. Maximum loan equals maximum annual interest divided by the rate over one hundred. If you enter a price, the implied loan to value equals the maximum loan divided by the price multiplied by one hundred.

Why income cover drives the loan

Lenders want headroom so the loan can still be paid through quieter seasons, a softer year or a rate rise. They usually set cover ratios between 125 and 145 percent, and price the loan accordingly. A higher ratio means a stronger cushion but a smaller loan. Where the projected short-let income is seasonal or still building, it may cap the loan below the headline loan to value of 65 to 75 percent. To model the deposit and monthly cost once you have a loan figure, use our holiday let mortgage calculator.

Worked example

On a holiday let producing 45,000 pounds of projected short-let income a year, at a 7.5 percent rate and a 130 percent cover ratio, the maximum annual interest is about 34,600 pounds and the indicative maximum loan is roughly 461,000 pounds. Enter a 650,000 pound price and the implied loan to value is around 71 percent, near the top of the usual range, so the lender may trim the loan slightly. Send us the deal for a real view.