Holiday let is a huge growth area and one that more brokers and lenders should pay close attention to this year, brokers have argued.
Dean McCormack, a mortgage broker at AK Partnership, said, as a broker based in Devon, he has fallen into this holiday let market and sees it as a huge growth area, partly because of the tax purposes of being outside of George Osborne’s mortgage tax relief changes.
He said residential buy-to-lets are classed as investments so are taxed on the full amount, while holiday lets are classed as businesses so landlords can still claim the mortgage tax relief as normal.
McCormack added there’s potential to look at higher loan-to-values on holiday lets because of strong rental yields and there’s the ability for applicants with some lenders to still use the property themselves.
He said: “With how the market’s changing it’s quite clear brokers are becoming more specialised rather than the one-size-fits-all approach, and with holiday let if you understand the market it’s great.
“Holiday lets aren’t just by the sea. With stagnating house prices in London lots of homeowners are looking at second homes in the countryside and the tax purposes that holiday lets have too.
“And people are using London properties as short-term lets for convenience, with more people able to work from home and the rise of AirBnB.
“And the market is stronger now and with specialist mortgages, people are more comfortable purchasing knowing they can get finance on these types of property. Traditionally, people needed to raise capital against other properties or buy outright.”
Payam Azadi, director of Niche Advice, said there’s certain tax advantages and he has seen more enquiries around holiday let as a business.
He added: “At the moment it’s catered by a relatively small number of lenders. We see more demand as investors seek better returns. It’s definitely a market that’s improved.”
Andrew Turner, chief executive at specialist buy-to-let broker Commercial Trust, said the Brexit uncertainty around passports and travelling to Europe could mean that more people choose to spend their holidays in the UK this year, offering a further uplift in the holiday let market.
He said: “The holiday let market has gained considerable momentum over the past year, as evidenced by the growing number of lenders now offering mortgages suitable for this type of investment.
“But as with all investments, I would urge anyone thinking of entering the holiday let market to do their research first and to ensure they can meet the demands of what is typically a more fast-moving rental sector than buy-to-let.”
David Hollingworth, associate director of communications at L&C Mortgages, said that there didn’t used to be many products for holiday lets, but the range of products has slightly improved and more borrowers are thinking it’s a market to look at.
He went on to say lenders have typically stayed away from them because of thedifficulty of trying to assess what the rental income could be. Lenders like the regular rental income coming in to base their borrowing on, while holiday lets are much more seasonal, for example producing more income in the summer.
Hollingworth said: “Lenders have to think about how to assess that income and look as a whole rather than expect a regular month-on-month income. The small building societies have been more active in this.
“It’s different to standard buy-to-let but buy-to-let is splitting into many different segments and I don’t see why brokers wouldn’t want that knowledge base around holiday lets and I think you’ll see a bit more choice from lenders going into it.”
Similarly, Jeff List, head of buy-to-let at Brightstar Financial, said some lenders only stress test income on properties with assured shorthold tenancies rather than holiday let agreements.
He said: “Holiday let is a growth area. It’s how do we calculate the income from that person and property without knowing what it’s achieved before or will going forward?
“So, it has to be in the hand of a surveyor in the area who has looked at a similar property before.
“I think lenders have to work closer with a surveyor on their panel to form a strategy that can work.”