Demand for holiday lets stronger than ever

Various pandemic-fuelled revelations have shaped the past couple of years, from the so-called ‘death of the high street’, to the realisation that remote working could be a reality. For buy-to-let investors, some of these trends, such as the purported exodus out of London and other cities have proven little more than a flash in the pan.

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Rob Oliver | Castle Trust Bank
13th June 2022
Rob Oliver
"Holiday lets, as an investment category, is still in its infancy and the lending market is evolving to provide more specialist solutions in this area."

One trend that might in fact prove more permanent, though, is the rising popularity of holiday lets. Of course, the ‘staycation’ first boomed when there was little other choice than to holiday within our shores. Many might have expected the sudden love for our own green pastures to give way to a wish for warmer climes abroad when travel restrictions started to lift, but not so, it seems.

According to Sykes Holiday Cottages’ ‘Holiday letting Outlook Report 2022’, the UK staycation sector continues to boom, with bookings up 35% compared with pre-pandemic levels. A quarter (25%) of current holiday home owners started letting during the pandemic, and 85% say bookings are stronger than ever, and do not expect this popularity to abate for at least five years. Unsurprisingly, the Lake District, Dorset and Cornwall have seen the biggest booms.

In an environment of increased regulation and taxation tightening margins on standard buy-to-let investments, holiday lets present an attractive opportunity and Sykes says that 69% of holiday let owners do this alongside a full-time job.

However, it is not simply a case of earning easy money in the background. These properties take considerable management, particularly post-pandemic, with expectations of stricter cleaning regimes. As demand, and rates, continue to rise, there is also an expectation of luxury, which means that to make a property desirable, owners may have to invest heavily in amenities. For those with a full-time job based further away from their property, remote management can also come with added time and cost implications.

Holiday lets tend to offer greater returns than Assured Shorthold Tenancies (ASTs), which can more than offset the added demands, but would-be investors should remember that to get the most out of this opportunity, the location, amenities and management have to be just right.

It is also worth considering that this is a newer market, with the potential for rapid developments. We have already seen Mayor of London Sadiq Khan push back against what he deemed the ‘threat’ of an influx of short-term rentals in the capital by imposing a 90-day cap on renting out homes. In 2019, Khan suggested a ‘light touch’ registration system to better enforce this rule, which many have found ways to flout, including listing on multiple short-term booking sites. Prospective owners should make sure to keep up with any regulation that might come in as the staycation trend swells further.

Holiday lets, as an investment category, is still in its infancy and the lending market is evolving to provide more specialist solutions in this area. Lenders are starting to get on board and introduce tailored products, but it might still prove difficult to find something that suits everyone, particularly for first-timers with a limited ability to prove either previous experience or projected rental income. In fact, many lenders continue to assess affordability based on AST rental projections, usually lower than the income prospects actually offered by holiday lets.

This is why it’s so important to partner with a lender that understands the nuances of specialist buy-to-let investments, including holiday lets, uses rental income rather than AST and is able to provide lending based on the individual merits of a case, potentially even structuring a bespoke solution to meet the requirements of the client.

The holiday let market undoubtedly provides many exciting opportunities, either for seasoned landlords looking to diversify their portfolios, or one-off investors with a view to supplementing their income. Our love affair with the UK’s green and pleasant land is not likely to cool any time soon, but brokers should make sure they are working with a lender that understands the complexities and nuances, and has developed its criteria accordingly.

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