Summer holiday a distant memory
Marcus Dussard is sales director at Hampshire Trust Bank
With the kids firmly embedded back in school and the sometimes never-ending six-week holiday a distant memory, working families are getting back to some kind of normality – whatever normal means anymore.
With the Autumn weather arriving, it’s an opportune time to reflect on the performance of, and what the future might have in store for, what may be considered as the surprise package of the mortgage market in recent times – the holiday let.
It’s well-documented why holiday lets have seen such a meteoric rise in prominence. The pandemic and its impact on international travel has understandably boosted demand for short-term lets across the UK and made the appeal of such properties even stronger for a wider range of investors.
The allure of significantly higher yields has grabbed the interest of landlords who are in the position to successfully tap into the potential of such properties situated in the right locations.
When assessing recent activity, it was interesting to read a story on the BBC website which outlined that more than 11,000 second homeowners in England have flipped their properties to become holiday lets since the start of the COVID pandemic.
Analysis of government figures by the Altus Group showed that the number of holiday homes trading as businesses has jumped by more than 20%.
The data shows that 67,578 homes classified as holiday homes have been flipped to become commercial premises, compared to 56,102 properties in March last year.
Almost 4,000 homes have been flipped in South West England alone since the start of the pandemic, amid record visitor numbers in Cornwall and Devon.
Meanwhile, the South East also has also seen a significant rise in the number of new lets, with a 27% rise – or 1,458 properties.
Such trends have certainly not gone unnoticed in the lending community. Recent analysis from Moneyfacts suggested that mortgage options for borrowers looking at holiday lets have more than doubled since August 2020.
The figures, released in early September, showed that 186 options were available on the market, compared to 74 a year ago. More lenders are also suggested to have entered the market, with 25 different firms offering holiday let products versus 14 in August 2020.
These represent some strong figures and really underline the direction this market is heading in. However, it’s important to retain some perspective in terms of how relatively niche this remains from a lending perspective and how tricky this can be when it comes to the underwriting process. And this is why it will stay in the domain of specialist lenders for some time to come.
Such cases need careful consideration in terms of location, flexibility to adapt/change, landlord experience and income. Other factors such as occupancy rates and seasonality also need to be taken into account and these stretch way beyond the mainstream tick box underwriting mentality.
Landlords must also carefully weigh up tax benefits, understand localised rules on holiday lets and residency periods plus take into account a host of variables, meaning this is not an area to jump into lightly.
Advice can prove key for landlords when seeking finance, and the better equipped intermediaries are when it comes to understanding the products, criteria and processes of lenders who offer this product type, the more valuable this advice will become.