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Holiday lets | Discover Why it Has Gain Ground Against BTL Uncovered | 2021

Holiday lets

Holiday lets


Holiday lets are increasingly becoming the preferred choice for individuals seeking investment opportunities, gaining momentum over traditional buy-to-let (BTL) options. The allure of holiday lets continues to grow, attracting investors with the promise of lucrative returns and diverse advantages. As the popularity of short-term rentals surges, they present a compelling alternative to the more conventional long-term rental market.

This shift in investment preference is driven by various factors, including the flexibility and higher rental income associated with holiday lets. Investors are drawn to the idea of capitalising on peak vacation seasons, maximising profits during periods of high demand. Unlike traditional buy-to-let properties, holiday lets offer the potential for greater financial gains, making them an increasingly attractive option in the competitive real estate market.

Furthermore, the rise of online platforms and digital marketing has facilitated the management and promotion of holiday let properties, making it easier for investors to reach a global audience. The accessibility and convenience of online booking platforms have streamlined the rental process, contributing to the appeal of holiday lets as a viable and efficient investment strategy.

The trend of holiday lets gaining ground against buy-to-let investments underscores a shifting paradigm in the real estate market. The unique advantages and evolving dynamics of short-term rentals position them as a promising avenue for individuals seeking financial returns and the flexibility and adaptability of this emerging investment trend.

Holiday lets | The benefits of staycation

Holiday let products have grown rapidly in popularity over the past year as tax benefits and a staycation boom in combination with lockdown savings have tipped would-be investors into action.

While temporary, Covid-driven international travel bans have driven up yields and occupancy levels for UK-based holiday let properties, underlying drivers suggest that growth in the segment will continue even as borders open up.

Drew Somerston
Drew Somerston, Associate Director at LDN Private Clients

Drew Somerston, associate director of private clients at LDNFinance, said: “Over the last eight to 12 months, there has been a massive influx in enquiries – one of the reasons probably has been Covid, and there are other reasons as well.”

Good levels of support and expertise from local holiday lettings agencies and the rise of easy-to-use websites for letting properties have made the option attractive to investors.  Additionally, those who had previously toyed with the idea of investing in an out-of-town property were now viewing seaside or countryside locations with an even rosier hue.

Lenders’ range of products on offer has added momentum to the market, with various options available depending on the client’s desire.  “They can do it as residential and holiday in it most of the time, then let it out for a small portion of the year. On the flip side, when they buy it as a holiday let, they get a mortgage. Many lenders allow you to live in the property for a couple of months a year, some up to three months,” said Somerston.

The varying criteria on offer from lenders include if they require minimum personal income, at what level, whether they accept Airbnb lets, if it’s a first-time lettings venture and if personal use is allowed.

BTL versus Holiday lets

There are advantages over buy to let (BTL). These include more favourable tax rules and potentially less onerous affordability calculations due to higher yields.

Liz Syms
Liz Syms, CEO and Founder of Connect

Liz Syms, chief executive at Connect Mortgages, said: “To understand what’s going on in the market, you have to return to the tax changes that phased in from 2017. Before those tax changes, there wasn’t really a holiday let mortgage market. People would be running a holiday let but using a BTL mortgage.” 

The response from lenders to the tax policy shift was to develop more holiday let products. Moneyfacts data showed that 159 holiday let mortgages were available from 24 lenders, comprising 91 fixed and 68 variable rates, including three tracker deals, as of 23rd June 2021. The average fixed rate on a holiday let product was 3.87 per cent.

The list of 24 providers consisted of 18 building societies and six private banks.

Somerston said: “Rates are a touch higher than for a standard BTL. Inevitably, because it has grown so much, you’d think the mainstream BTL lenders would have to take up a portion of this market. It’s very lucrative.”

Holiday lets | Product variation

Damian Cain
Damian Cain, director of Complete FS

There are two types of holiday let. One is a BTL product with permission to let on a holiday basis, where affordability is calculated based on expected income for an assured shorthand tenancy (AST). The second is a commercial loan, which looks at the profit and loss of the lettings business.

“They will ask a local holiday letting agent to advise the low, mid and high season rates for the property, assume, say, 30 weeks occupancy, and take an average,” said Damian Cain, director of Complete FS.

The difference in income for a holiday let business would typically be about 50 per cent higher compared to a standard AST.  National parks, coastal towns, villages and countryside beauty spots are all potentially in scope, though location restrictions exist.

Chris Blewitt, head of intermediary distribution at Darlington Building Society, is among those who believe staycation culture will continue to support the holiday lets market well beyond the ending of restrictions on flying abroad.

Darlington Intermediaries launched its holiday let offering two weeks ago, putting the plans on hold in the teeth of the lockdown in spring 2020.

“We’re in the North East, about 10 miles from beautiful Northumberland coastline, and we have historic sites. It’s always been there, but you get wowed by holiday brochures to Spain.  “In the longer term, people will want to visit the world, but let in more traditional places, like the Lake District and seaside resorts, will certainly continue to be stronger than they were going into the pandemic,” he said.

Credit: Liz Bury  Holiday lets

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