The buy-to-let sector comprises properties in the private rented sector (PRS) financed by mortgages. It represents about a fifth of the UK’s total mortgage market and accommodates approximately 45% of private renters.

In the UK, 19% of households rent privately, 35% own their homes outright, and 30% have mortgages. Moreover, 17% of households are social renters linked to housing associations or local authorities. Although BTL properties form only 9% of the UK housing stock, they are closely tied to other aspects of the financial system and housing market.

The start of a new calendar year often brings hope, resolutions, and predictions for the mortgage market.

At the end of last year, UK Finance shared its outlook for the next two years. They published the “Mortgage Market Forecasts” document on 11th December 2023.

According to this forecast, UK Finance expects total gross buy-to-let mortgage lending to drop from £28 billion in 2023 to £26 billion in 2024 and remain steady into 2025. Notably, these projections, which mark a significant drop from the anticipated £43 billion in the 2022 forecast, do not account for product transfers.

The dip doesn’t spell doom and gloom or deter potential landlords from entering the buy-to-let market. However, if your client is considering a second property, they choose between a buy-to-let and a holiday-let property.

Both options offer strong business potential and substantial returns on investment. However, choosing the right one depends on specific needs and goals.

This, of course, will be determined through your expert advice as a mortgage broker.

Why Holiday Let is an option to consider

In recent years, the landscape has shifted considerably. Although buy-to-let properties were once the favoured investment, there has been a notable shift. More investors are now turning to holiday lets. However, holiday rentals may not suit everyone. Therefore, it’s important for your client to understand their differences to decide.

They can transition their mortgage if they later conclude that a long-term rental isn’t the right fit. This transition can be from a buy-to-let to a holiday-let mortgage. This flexibility allows them to adapt their investment strategy. An adviser can present options to clients based on their needs. Additionally, they can consider lender criteria and the market’s evolution. Read more in our previous article, Holiday Let.

How can specialist lenders help?

Specialist lenders support landlords and investors in the buy-to-let and holiday-let markets. They offer tailored financial solutions not typically available through mainstream high-street banks. Consequently, mortgage networks like Connect have become crucial in this context. It’s important to note that these specialist lenders generally provide their services exclusively through intermediaries.

Given this arrangement, the relationship with these networks becomes paramount. Significant time and resources are invested into these partnerships. This commitment helps maintain a deep level of knowledge and understanding. As a result, it facilitates accurate and efficient processing of buy-to-let applications.

Connect regularly hosts sessions where lenders present and discuss their specific criteria and requirements. One key focus of these sessions is the buy-to-let and holiday-let markets. This proactive approach ensures our network members are thoroughly informed. They are equipped to guide clients in making well-aligned investment decisions.

Key differences between buy-to-let and holiday-let properties

A holiday let mortgage is quite similar to a buy-to-let mortgage. However, key differences exist.

A buy-to-let mortgage is a commercial mortgage. It’s designed for properties rented out on short-term tenancies. These tenancies usually last between six and twelve months.

Conversely, a holiday let mortgage often uses the same or similar financial products. Yet, it is tailored for properties rented out in the very short term. This can be as short as a week or up to a month. These properties are commonly in popular vacation destinations like Cornwall, the Lake District, or the Scottish Highlands.

Both buy-to-let and holiday let investments offer viable paths to income generation and help build wealth through property investment. A comprehensive evaluation should guide the choice between them. Consider their respective advantages and limitations, market conditions, and personal financial goals.

Learn more about Connect for Intermediaries here.