The rising potential of holiday let clients

Paul Lewis | Mansfield Building Society
11th February 2019
Paul Lewis Mansfield
"Landlords who might ordinarily have ‘stuck to their knitting’ are now looking at property investment opportunities in different sectors"

We might currently be in the depths of winter but it appears that the ‘traditional holiday season’ in the UK is moving way beyond that of the school holidays.

Indeed, when it comes to taking holidays, long weekends away, city breaks or even over-nighters, this has become a year-long exercise which has undoubtedly been boosted by the online websites that allow consumers to view all available options and book at their leisure.

There are now an array of websites which open up a whole world of properties and allow owners to access potential customers right across the globe. It’s fair to say these booking systems have drastically empowered the sector and the attraction continues to grow.

This also means there is new potential for investment opportunities and, as landlords have been squeezed in their ‘traditional’ residential space, they are increasingly turning to properties which not only appeal to the holiday-maker market, but can also secure the tax relief advantages that have been pared back in the residential space.

In the search for investment opportunities in the property market, one area which has, up until relatively recently, been overlooked is the UK holiday let business. However, this is changing.

This is partly due to the weaker pound increasing the cost of holidaying abroad and leading to an increase in the popularity of the UK as a holiday destination for people who are more likely to ‘staycation’. The weaker pound also means tourists coming to the UK get more bang for their buck, euro or other currency, and Visit Britain has seen a noticeable upturn in the number of overseas holidaymakers.

As mentioned, the private rental sector market has undoubtedly changed in recent years due to the regulatory and economic impacts of the new rules placed upon landlords. Landlords who might ordinarily have ‘stuck to their knitting’ are now looking at property investment opportunities in different sectors - one of those is holiday lets because rents are strong here and if you get the property/location right, then yields can be significant.

Coast and Country Cottages recently said that average rental values in the holiday let space were 8.7% higher than the previous year, with overall rental income up 10%. That is clearly an attraction for landlords, and it’s why we at The Mansfield responded to that demand by launching our holiday let mortgage, which offers loans up to 70% LTV.

Properties eligible for this type of product must have a minimum value of £150k and qualify as a furnished holiday let under HMRC requirements. We also allow the owner to occupy the property themselves for up to 60 days a year. In terms of assessing affordability, we look at the proportion of the annual average of low/mid/high season income. Mortgage interest can be offset against any income for tax purposes and there are also a number of other tax advantages to owning this type of property.

As advisers active in the buy-to-let space, it may well be that you see an increase in the number of landlord clients looking at options such as holiday lets in order to both diversify their portfolios but perhaps also to give themselves access to a holiday home.

In popular areas like Cornwall and Devon – but also right across the country where demand for occupancy is high – capital values can be strong. These properties can deliver a good yield, and with lenders like ourselves specialising in this part of the market, we believe that many more landlords will be seeking out such opportunities in the years ahead.

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