Becoming a Holiday Let landlord – What you need to know

In 2020 as the pandemic prevented the majority of foreign travel, many of us rediscovered the delights of a UK holiday. A few years on the appetite for staycations across coastal, countryside and city locations shows no sign of slowing, prompting a boom in the holiday let market as investors seek to capitalise on this emerging opportunity.

However, this is still a niche market and it pays to ask a few questions before embarking on a holiday let business venture.

What is a holiday let?

A holiday let is a property available for short-term rental for a certain number of days each year and for personal use at other times. It must meet the following criteria:

• The property must be furnished and available to let for at least 210 days (30 weeks) a year
• The maximum length of time for any single holiday can be no more than 31 days
• The property must be commercially let for at least 105 days a year.

Will I need a specialist holiday let mortgage?

Yes, a holiday let mortgage is designed specifically for a short-term rental property with provision for the owner to stay at the property some of the time. A Buy to Let mortgage is designed for longer-term lettings.

As a seasonal business, where income may be irregular and limited to peak times of the year, a holiday let poses more of a risk to the lender. As a result, rates and deposits tend to be higher, a deposit of 25%-30% of the total property value being is more usually required compared to 5%-10% for a standard residential mortgage. Find out more about Holiday Buy-To-Let Mortgages in our handy guide.

Where can I get a holiday let mortgage?

Holiday let mortgages are not readily available on the high street. Instead, lenders tend to be smaller building societies or holiday let specialists accessed through a mortgage broker. We advise that you speak to an independent mortgage broker such as Vincent Burch Mortgage Services where you will benefit from a professional overview of holiday let mortgages across the whole market.

What will lenders be looking for?

Criteria varies but typically include:

• Minimum income – expected to be between £20,000- £40,000

• Minimum and maximum mortgage amounts - ranging from £25,000 - £750,000

• Loan to Value ratio - tends to be set at a maximum of 70%, sometimes 75%

• Projected rental income - usually expected to be a gross (pre-tax) rental income of 125%-145% of the monthly mortgage repayments when calculated at a 5.5% interest rate (this may of course change as interest rates rise)

• Age and experience –minimum age of 21 and an existing homeowner

• Usage – the property can’t be a main residence

• Portfolio limit – some lenders place a maximum on the number of holiday lets they are comfortable with one person or company owning

What other factors are important?

Location

Choosing a popular location is one of the most important factors in the success of a holiday let business. Take time to research aspects such as local market conditions, likely income a property could generate, customer demand in the area, competition and different property types available.

Property

What features will you offer holidaymakers? For example, Wi-Fi and pet-friendly will be high on the list and extras such as hot tubs and open fires are also growing in popularity. Also, think about sustainability – some properties have eco-friendly elements such as electric vehicle charging points, solar panels and heat pumps installed.

Costs

In addition to the upfront and ongoing mortgage payments, it’s important to factor other costs into your calculations such as maintenance, council tax, utilities, insurance, cleaners, gardeners, etc.

What about tax?

The main tax advantage for holiday lets is that you can still deduct mortgage interest payments from rental income, reducing your profits and therefore your tax bill. Landlords are also eligible for allowances for furniture and fittings – and if your business makes a loss, you can offset it against profits in future years. We recommend speaking to a tax adviser or accountant to understand your position.

Are holiday lets a good investment?

In popular areas, a holiday let will generate higher rent than a standard long-term rental property and there is potential to achieve a healthy second income with the right location, property and level of demand. Analysis by Sykes Holiday Cottages showed that in just two years, the average income for property owners went up by 33%, with the most popular regions for summer this year being North Wales, Cornwall, Cumbria & the Lake District, Devon and the North Yorkshire Moors & Coast.

However, as with any investment opportunity, it’s important to seek professional advice to ensure it makes financial sense for your own specific circumstances. Time spent getting it right now will pay dividends later.

How can Vincent Burch Mortgage Services help?

As a whole-of-market intermediary, our expert team at Vincent Burch Mortgage Services has access to all specialist lenders offering holiday-let mortgages. We’ll work together to understand your requirements and find the best mortgage for your plans. With extensive experience, we are well-placed to guide you through the process and pride ourselves on helping customers make the most of their investment.

Get your holiday let business moving by calling us today on 01603 851534 or email [email protected]

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