"This area of the buy-to-let market is not only capturing the attention of landlords but also the intermediary market."
However, the interest shown by the audience during the talk and in the many questions I received after it does demonstrate how this area of the buy-to-let market is not only capturing the attention of landlords but also the intermediary market.
These questions varied greatly from some of the more basic ones to really specific ones around our criteria and approach to certain landlords. As with any relatively ‘new’ area of the mortgage market, it’s important for lenders to be as transparent as possible about our offerings and help inform the broker and landlord community on the intricacies of multifaceted product types.
So, getting back to basics for a moment, let’s just outline a few key differences from a traditional buy-to-let purchase.
The difference between buy-to-let and holiday let
The biggest difference is the length of a tenancy for a holiday let. This tends to run for a matter of days or weeks, rather than the months or years of a tenancy in a typical buy-to-let property.
Holiday lets are attractive as they can often be rented out for much more money when compared with traditional rental properties. This allows owners to generate a much larger income if they are able to let such properties out on a regular basis.
HMRC also views furnished holiday lets differently to buy-to-lets. Landlords are able to claim tax relief on mortgage interest because holiday lets are classed as a business. With buy-to-let properties, this relief is being reduced. Investors are also able to use a holiday let for their own trips although, HMRC rules state that it must be available for letting as furnished holiday accommodation for at least 210 days of the year.
On the flip side, special insurance policies will be needed plus, due to the higher number of tenancies, cleaning costs will regularly be incurred and repairs/maintenance are likely to be substantially higher.
Affordability
From a lending perspective, affordability is a crucial element of all mortgage applications but particularly for holiday lets given how variable the income can be. As a result, lenders will tend to look at the average weekly rental for low, medium and high seasons, and then find the average of those three amounts to come up with a single figure. Lenders will then use this figure to work out what they are willing to lend investors for a holiday let purchase or refinance.
In some cases, these figures will come from the borrower’s own experience, as they already own the property. In other cases - where the borrower is looking to purchase a holiday let - then they may have been compiled on the borrower’s behalf by a local holiday letting agency.
Additional income
When it comes to holiday lets, lenders will often look for borrowers to have an income outside of their property investment. The level of that personal income will play a factor in determining the amount that can be borrowed, alongside other considerations such as whether the property is being bought as an individual or limited company, whether the applicant owns a residential property and whether occupancy restrictions apply.
When assessing this market purely from a HTB standpoint, between 10-15% of all of our ‘specialist’ mortgage lending in 2021 was for holiday lets and we are currently receiving more enquiries from brokers for this product type than in any other aspect of our lending.
And demand continues to rise. According to its inaugural Holiday letting report, Sykes Holiday Cottages said it had experienced a 78 per cent increase in owner enquiries so far this year compared to the same period in 2020. This outlined that 39 per cent of enquiries in 2022 had been from those completely new to holiday letting, whilst nine per cent were experienced holiday let owners. Adding that a quarter of UK holiday home owners started letting during the pandemic, whilst nine per cent have been letting for 10 or more years. A quarter also used to run their property as a long-term let.
The fact remains that staycations are here to stay and, as a comparatively under-developed market, there is a real opportunity for lenders, brokers and property investors to make a significant impact.
