Holiday lets | The benefits of staycation
Holiday let products have gained significant popularity over the past year. Transition words such as “furthermore” and “moreover” highlight key contributing factors, including tax benefits, a rise in staycations, and savings accumulated during lockdowns. These elements have motivated potential investors to take action.
Temporary COVID-related international travel restrictions have notably boosted yields and occupancy rates for UK holiday let properties. However, even as travel resumes, underlying market conditions suggest the growth trend will persist.
Drew Somerston, associate director of private clients at LDNFinance, observed a sharp rise in enquiries during the past eight to twelve months. He attributed this surge to the impact of Covid and additional influencing factors.
Moreover, local holiday letting agencies and intuitive websites have simplified the process, increasing its appeal to investors. For instance, those initially considering properties in urban areas are now more inclined to explore seaside or countryside locations.
Lenders have also expanded the range of products available, further fuelling market momentum. Options vary widely, catering to different client needs. For example, one may purchase a property primarily for personal use and let it out part-time. Alternatively, some secure a holiday let mortgage exclusively for rental purposes. Many lenders permit up to three months of personal use annually, ensuring flexibility.
However, lender criteria can differ substantially. These include minimum personal income thresholds, the acceptance of Airbnb-style rentals, suitability for first-time investors, and allowances for occasional personal use. This diversity makes it crucial for potential investors to seek tailored advice before committing to a product.
The UK holiday let market, driven by flexibility, tax benefits, and lender innovation, is poised to remain a strong investment avenue. With ongoing demand and supportive factors, it attracts attention from experienced and first-time investors.
BTL versus Holiday lets
Holiday let mortgages offer advantages over buy-to-let (BTL) options. They include more favourable tax rules and potentially less strict affordability calculations due to higher yields.
Insights from Industry Leaders
Liz Syms, CEO and Founder of Connect Mortgages, explained: “To understand the market, consider the tax changes phased in from 2017. Before these changes, there wasn’t a holiday let mortgage market. People would use BTL mortgages for holiday lets.”
Lenders responded to the tax policy shift by developing more holiday let products. According to Moneyfacts, as of 23 June 2021, 159 holiday let mortgages were available from 24 lenders. These comprised 91 fixed and 68 variable rates, including three tracker deals. The average fixed rate on a holiday let product was 3.87 per cent.
The list of 24 providers included 18 building societies and six private banks.
Somerston noted: “Rates are slightly higher than standard BTL. As the market grows, mainstream BTL lenders might enter this lucrative sector.”
Holiday lets | Product variation
Holiday let mortgages fall into two main categories. The first is a buy-to-let (BTL) mortgage, which permits holiday lettings. Lenders calculate affordability using income derived from an assured shorthold tenancy (AST). The second option is a commercial loan. These loans evaluate the profitability of the holiday lettings business.
Lenders often seek advice from local holiday letting agents to determine income potential. These agents guide seasonal rates, assuming an average occupancy of 30 weeks annually. According to Damian Cain, director at Complete FS, this approach ensures accurate income assessments.
Typically, income from holiday lets exceeds standard ASTs by around 50%. Popular locations include national parks, coastal towns, and picturesque countryside areas. However, some areas impose restrictions on holiday let properties due to local regulations.
Chris Blewitt, head of intermediary distribution at Darlington Building Society, highlights the enduring appeal of staycations. He believes the trend will persist beyond the easing of travel restrictions, supporting demand for holiday lets. Darlington Intermediaries recently launched its holiday let product, which had been delayed during the spring 2020 lockdown.
Blewitt explained, “Our North East location, near the Northumberland coastline and historic sites, attracts strong interest. While foreign travel has appeal, traditional destinations like the Lake District and seaside resorts remain highly popular. These locations are likely to maintain robust demand even post-pandemic.”
The Future of Holiday Let Mortgages
Holiday let mortgages offer attractive returns compared to standard rental properties. Scenic locations in the UK continue to thrive, driven by the staycation culture. With potential for strong profitability and enduring demand, the market for holiday lets remains promising.
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