Barry Luhmann

Sunny outlook for landlords tapping into the UK holiday market

Lorenzo Satchell

specialist account manager for London and the South, Together

It’s no secret that the pandemic changed the face of the UK holiday industry, with restrictions inspiring UK holidaymakers to explore breaks closer to home. And even now, in 2022, demand for staycations remains high, making holiday lets an investment opportunity worth considering – particularly as properties suitable for residential lets are currently in short supply.

Last year we predicted that holiday cottages and apartments would be more popular than hotels, with multiple generations of families choosing to holiday together in self-catering accommodation. That trend seems to be continuing this year, with 47 per cent of Brits planning a UK holiday in 2022, and almost a third of those looking for self-contained rented accommodation like a holiday let, according to Together’s research.*

In addition to strong demand, there are some other key benefits to landlords diversifying their portfolios with holiday rentals, not least that they can expect around 30 per cent more yield on a holiday let than on a traditional buy-to-let. There are also additional tax reliefs, with a furnished holiday let able to offset costs like energy and gardening against their profit, reducing a landlord’s tax bill.

Holiday let properties are rented under a licence to occupy, meaning the landlord, not the renting guest, is responsible for the energy bills. Therefore, holiday lets could be excluded from the upcoming changes to EPC regulations (which will require rented properties to have a minimum EPC rating of C from 2025). This means that older properties, or those of unusual materials that might be harder to make energy efficient, could be more suited to a holiday let than to a longterm residential lease.

SPECIALIST FINANCE TURNS CHALLENGES TO OPPORTUNITIES

The insecurity of a short-term lease compared to a long-term lease often means that high street lenders are wary of backing holiday let investments, meaning these cases might require a specialist lender who can review applications on a case-by-case basis.

Landlords’ incomes can also be more complex than that of the average buyer, with multiple sources of income and portfolio-level LTVs to consider. Moreover, these borrowers may be expats and foreign nationals, either with no UK credit history, a CCJ, or a missed payment.

Your landlord clients may not realise that specialist lenders can often work with all of these more complex factors. For example, at Together we’re able to “top-slice,” factoring in the borrower’s other income if rental income alone won’t sufficiently cover monthly payments. We’ll also consider individuals with a lack of credit history, and small financial blips in many cases. We’re also flexible on a wide range of property types – including some of the most appealing short-term lets, like timber-framed barns and thatched cottages, or properties requiring a change of use.

TURNING A PROFIT ON CHALLENGING PROPERTIES IN HOLIDAY HOTSPOTS

Holiday lets are most profitable in tourist destinations where demand is high. However, this increases property prices in these areas, meaning landlords can expect to pay over the odds for the right rental property. But there are bargains to be had with undervalued properties, such as those in need of work being sold at auction, and commercial buildings that can be switched to residential use, providing some great opportunities and ROI.

Specialist lenders like Together offer bridging loans, helping investors get the keys while they wait for a new, longerterm facility to be granted after they’ve completed necessary renovations. Portfolio landlords who’ve built up sufficient equity can secure their new loan against multiple properties, essentially enabling them to borrow 100 per cent of the new acquisition’s purchase price.

By working with experienced packagers, you can help your landlord clients gain access to the specialist finance options available, allowing them to seize opportunities and tap into the holiday trend that looks like it’s here to stay.

Steve Swyny, commercial director at packager First 4 Bridging, adds, “We’ve noticed an upturn in landlords looking to specialist lending to explore the holiday let market, partly because of the lucrative opportunities available, and certainly [because of] increasing consumer demand; flights are being cancelled left, right, and centre, and people are still worried about the coronavirus. For many Brits, going abroad will seem like more trouble than it’s worth.

“We’ve seen a lot of demand for bridging finance to help our brokers’ clients buy in popular tourist hotspots such as Devon, Cornwall, and Norfolk. With properties in these areas extremely sought-after, working with a specialist lender who can move quickly is vital to giving these clients a fast-mover advantage when they’ve spotted a worthwhile investment.”

For professional intermediary use only. *Survey of 2,000 UK participants conducted by OnePoll in December 2021 on behalf of Together