Holiday lets
Holiday lets | The benefits of staycation
Holiday let products have become popular over the past year. Tax benefits, a staycation boom, and lockdown savings have spurred potential investors into action.
While temporary Covid-driven international travel bans have boosted yields and occupancy levels for UK holiday let properties, underlying factors suggest continued growth. This trend is expected even as borders reopen.
![Drew Somerston](https://connectbrokers.co.uk/wp-content/uploads/2021/07/Associate-Director-at-LDN-Private-Clients.jpg)
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.
![Liz Syms](https://connectbrokers.co.uk/wp-content/uploads/2021/10/Liz-Syms-300x212-1.jpg)
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
![Damian Cain](https://connectbrokers.co.uk/wp-content/uploads/2021/07/Damian-Cain-director-of-Complete-FS.jpg)
There are two types of holiday let mortgages. One is a buy-to-let (BTL) product allowing holiday lettings. Affordability is calculated based on income from an assured shorthold tenancy (AST). The second type is a commercial loan. This loan assesses the profit and loss of the lettings business.
“They will ask a local holiday letting agent to advise on seasonal rates for the property. Assuming 30 weeks of occupancy, they take an average,” said Damian Cain, director of Complete FS.
Holiday let business income is typically 50% higher than a standard AST. National parks, coastal towns, villages, and countryside beauty spots are in scope. However, location restrictions apply.
Chris Blewitt, head of intermediary distribution at Darlington Building Society, believes staycation culture will continue. This will support the holiday lets market beyond the end of flying restrictions.
Darlington Intermediaries launched its holiday let offering two weeks ago. They put the plans on hold during the lockdown in spring 2020.
“We’re in the North East, near the beautiful Northumberland coastline, and we have historic sites. It’s always been there, but holiday brochures to Spain can be enticing.
“In the longer term, people will want to visit the world. However, lets in traditional places like the Lake District and seaside resorts, will continue to be stronger than pre-pandemic,” he said.
Holiday let mortgages come in two forms: BTL products and commercial loans. The income potential from holiday lets is generally higher than ASTs. The staycation trend is expected to sustain the market, particularly in scenic UK locations.