Short-Term Rental Mortgages: What UK Landlords Actually Need to Know in 2026

The Rules Changed. Most Landlords Missed It.

April 2025 wasn't just another tax year. The Furnished Holiday Let regime, which has shaped short-term rental investment strategy for decades, is gone. If you're still operating under the old assumptions about mortgage interest relief, capital allowances, and CGT rates, you're working with outdated numbers.

This guide breaks down exactly what's changed, which lenders are still lending, and how to structure your STR financing in 2026 and beyond.

What Actually Changed in April 2025

The FHL Tax Regime: Abolished

The Furnished Holiday Lettings tax treatment gave short-term rental owners several advantages over standard buy-to-let landlords. Those advantages are now gone:

Mortgage Interest Relief

• Before: Full deduction from rental income
• Now: 20% tax credit only (same as standard buy-to-let)
• Impact: Higher-rate taxpayers now pay significantly more tax on the same rental income

Capital Allowances

• Before: 100% deduction on furniture, fixtures, appliances, heating systems
• Now: No capital allowances on new purchases
• Still available: Replacement of Domestic Items Relief (you can deduct the cost of replacing items, but not initial purchases)

Capital Gains Tax

• Before: Business Asset Disposal Relief gave a 10% rate on your first £1m of lifetime gains. Rollover relief let you defer gains by reinvesting.
• Now: Standard residential property rate of 24% (18% for basic-rate taxpayers). No rollover relief.

Pension Contributions

• Before: FHL profits counted as "relevant earnings" for pension tax relief
• Now: They don't. This limits how much you can contribute tax-efficiently.

Income Splitting for Couples

• Before: Flexible allocation regardless of ownership percentages
• Now: Automatic 50:50 split unless you file Form 17 within 60 days of signing

STR Mortgages vs Standard Buy-to-Let: The Real Differences

If you're financing a short-term rental, you're not applying for a standard buy-to-let mortgage. Here's what separates them:

Deposit Requirements

Lenders see seasonal income fluctuation as higher risk. A larger deposit offsets that.

Interest Rates

STR mortgage rates run about 0.5-1% higher than equivalent BTL products. Current market rates for holiday let mortgages:

Affordability Assessment

Both types require rental income to cover 125-145% of mortgage interest at stress-test rates. But STR lenders want:

• Professional rental income forecast from a letting agent (not your own estimates)
• Evidence of booking history if it's an existing property
• Proof the property meets FHL criteria (available 210+ days, let 105+ days, no let longer than 31 consecutive days)

Personal Income Requirements

Most lenders require minimum £25,000-£30,000 personal income. This must be earned income, not investment income.

Which Lenders Are Actually Lending in 2026?

The market has consolidated. Here's who's active:

Building Societies

Leeds Building Society remains the largest holiday let lender. Their 5-year fixed at 5.49% (75% LTV) is competitive, but they've started restricting lending in certain postcodes, particularly tourist hotspots with licensing concerns.

Furness Building Society offers products up to 75% LTV with minimum £30,000 income. They'll consider up to 4 properties per borrower (8 for joint applications).

Scottish Building Society focuses on Highland and coastal properties. Currently remortgages only in Scotland.

Cumberland Building Society is active at around 5.54% for 75% LTV products.

Specialist Lenders

Market Financial Solutions handles larger portfolios (up to £10m) with interest-only flexibility. Good for experienced investors with multiple properties.

Commercial Trust offers higher LTV (up to 80%), meaning you can get in with a 20% deposit. Rates are higher to match the risk.

Brokers Worth Knowing

Holiday Cottage Mortgages has exclusive access to sub-5% rates (4.55% 5-year fixed at lower LTVs). Specialist brokers often access products not available directly.

L&C Mortgages and Willow Private Finance both have holiday let specialists who can navigate the quirks of STR lending.

How Lenders Calculate Affordability

This is where STR applications differ most from standard BTL.

1. Seasonal Income Averaging: The lender gets weekly rental estimates for high season, mid season, and low season
2. Occupancy Assumptions: They typically assume 30 weeks of bookings per year (not your optimistic 45-week projection)
3. Monthly Conversion: Weekly rate × 30 weeks ÷ 12 = monthly rental income
4. Stress Test: Rental income must cover 125-145% of mortgage interest at a rate 2-3% above the actual product rate

Example calculation:

• High season rate: £250/week × 12 weeks = £3,000
• Mid season rate: £180/week × 12 weeks = £2,160
• Low season rate: £120/week × 6 weeks = £720
• Total assumed income: £5,880/year = £490/month

For a £200,000 mortgage at 5.5% interest (£917/month), you'd need the rental income to cover 125% of that (£1,146/month). At £490/month, this property doesn't pass affordability.

This is why location matters. Properties in strong year-round markets with consistent mid-season demand are easier to finance than pure summer holiday destinations.

The Regulatory Landscape: What's Coming

National Registration (England)

A mandatory registration scheme for short-term lets in England is being implemented. This creates a central database of all STR properties and gives local authorities data for enforcement.

Local Licensing

Tourist hotspots are going further. Brighton, York, Edinburgh, and parts of London already require planning permission or specific licenses for STR use. More councils are following.

90-Day Limits

Some areas (notably Greater London) cap STR use at 90 nights per year without planning permission. This affects your rental income projections and, by extension, mortgage affordability.

Scotland

A nationwide short-term let licensing scheme is already in force. Every STR property needs a license, and councils can refuse applications in certain zones.

Making the Numbers Work in 2026

With higher tax bills and tougher financing, here's how to structure profitable STR investments:

1. Focus on Year-Round Demand

Coastal cottages that only work in summer are harder to finance and less profitable after tax changes. Look for:

• Business travel destinations with conference centres or industrial parks
• University towns with graduation, open day, and parent visit demand
• Properties near hospitals (medical tourism, visiting relatives, locum doctors)

2. Structure Your Ownership Correctly

If you're buying with a partner, consider whether a limited company structure makes sense. Corporation tax is 25%, which may be lower than your personal marginal rate. But you lose CGT advantages and face higher mortgage rates.

For couples with unequal incomes, unequal ownership with Form 17 can shift income to the lower-rate taxpayer. This must be done properly with a Declaration of Trust.

3. Maximise Replacement Relief

You've lost capital allowances on new purchases, but Replacement of Domestic Items Relief still works. When furniture wears out, document the replacement cost. This becomes a deductible expense.

4. Time Your Capital Expenditure

If you're doing major refurbishment, consider whether finishing it before 6 April made sense for capital allowances on the 2024-25 tax year. For future purchases, there's no allowance, so factor the full cost into your return calculations.

5. Work With Specialist Brokers

Standard mortgage brokers often don't have access to the best holiday let products. A specialist broker can access exclusive rates and knows which lenders will accept your specific property type and income structure.

What You Can Still Claim

Despite the tax changes, standard business expenses remain deductible:

Always Deductible

• Utilities (electricity, gas, water, wifi)
• Cleaning and laundry
• Consumables (toiletries, tea, coffee)
• Repairs and maintenance
• Insurance
• Council tax
• Property management fees
• Marketing and platform fees
• Accountancy costs

Deductible on Replacement

• Furniture (beds, sofas, tables)
• White goods (fridge, washing machine)
• Soft furnishings (curtains, carpets, linens)
• Electronics (TV, sound system)

The Honest Assessment

Short-term rentals can still outperform standard buy-to-let on cash flow, but the gap has narrowed significantly. The tax advantages that made STR investment clearly superior are gone.

What remains is the potential for higher gross yields in the right locations, offset by:

• Higher management intensity
• Seasonal income volatility
• Platform fees (typically 3-15%)
• Higher mortgage costs
• Increased regulatory burden

If you have a property in a strong year-round market, genuine hospitality skills, and the time to manage (or budget for professional management), STR still makes sense.

If you were attracted mainly by the tax benefits, the equation has changed. Run your numbers with the new tax treatment before committing.

Take Action

Understanding the mortgage and tax landscape is step one. Step two is modelling what a specific property will actually return under current rules.

Book a strategy call to review your situation. We'll look at your numbers, your target market, and whether short-term rental investment fits your goals in the current environment.