The UK holiday let industry has been steadily growing in popularity among property investors and holiday goers alike and doesn’t look to be slowing down anytime soon! Commercial Consultant, Andy Elley, explains what the benefits are and the type of investments we’re seeing.
My clients have been heavily investing in the holiday let sector over the last five years. The yields available on holiday let properties have rocketed, and it is no surprise to see well-maintained properties, in the right locations, producing yields over 10% per annum. Here at Mortgages for Business, we’ve seen first-time and seasoned holiday let owners investing extensively, and many experienced landlords diversifying their portfolios in this sector.
Prior to the COVID-19 pandemic, the UK holiday let industry was experiencing high booking levels as the Euro to Pound exchange rate attracted plenty of international holiday-makers, and UK residents were encouraged by the summer heat-waves. Although international tourism wholly disappeared due to the pandemic, the “stay-cation” boom saw record booking numbers from UK residents. With many now reluctant to travel abroad for their holidays, we expect the UK holiday let industry to continue to benefit for a good few years to come.
Pandemic aside, holiday let properties offer some landlords an alternative tax-efficient investment vehicle. This has been felt even more by landlords since the full loan-interest tax-relief restrictions came into force in April 2020. From a tax perspective, to benefit from the more favourable treatment of loan interest the property must be available to let for at least 210 days in the tax year, and actually let for 105 days. There are many taxable allowance offsets available depending on your circumstances, for example: council tax, repairs, depreciation of the fixtures and fittings, and loan interest. To find out how this applies to you, please seek professional tax advice before making any decisions.
What types of property are classed as holiday lets?
We finance a wide variety of properties for the holiday let market. It’s fair to say that Airbnb has diversified the sector, both in terms of location and property types that people look for. It’s no longer just week-long, cottage holidays in the countryside!
Over the last couple of years, we have sourced mortgages for houses large and small, flats above commercial property and multi-unit freehold blocks (to name but a few)! We’ve also encountered challenging covenants which only allow the property to be a holiday let, and arranged finance for more extensive holiday let complexes.
How are holiday lets financed?
The majority of holiday let lenders calculate mortgage affordability based on the projected holiday income. This method allows the potential higher levels of return (compared to a standard Assured Shorthold Tenancy) to be taken into account. However, it is worth noting that the majority of applicants who go down this route are of reasonable net worth and have the benefit of high outside income to strengthen their application.
Some lenders will base affordability on the properties predicted rental income if it were let out on a standard Assured Shorthold Tenancy (AST) too. I’d recommend speaking to your broker about what might be the most suitable option for you.
A recent conversation with one of our major holiday let lenders revealed that Mortgages for Business place substantial holiday let business with them, more than any other broker in the UK. We have years of experience and knowledgeable commercial mortgage consultants who are particularly
adept at piecing a deal together. Because of our expertise and dedication to the sector, we have been able to position ourselves as industry experts in holiday let mortgages. Our advisers know who is lending, providing our clients with peace of mind that we will fund their dream project, saving them time and money in the search.
We now have over 14 lenders offering holiday let mortgages, which between them offer:
· Up to a maximum of 75% loan to value (LTV)
· Rates from 2.49% on a two-year discounted rate, through to 3.34% for a five-year fixed rate*
· Loans to individuals, SPV limited companies or trading limited companies
· Arrangement fees usually between 0-2% of the loan amount
· Free valuations for some mortgage rates
Because several lenders consider applications from SPV and Trading Limited Companies, it often throws up the question, what entity should I borrow in? Should I borrow as a sole trader, a partnership, a Limited Company or a Limited Liability Partnership (LLP)? I am afraid one answer doesn’t fit all and every case is different. As I mentioned earlier, you will need to take professional tax advice to find the best solution for you. We have lenders who will lend to all of these categories and are here to advise you whichever route that you choose to go down.
Whether you are aspiring to own your own holiday home, are looking to diversify your property investment portfolio, or continuing to expand an existing holiday let portfolio, there are lenders out there for all circumstances. You can contact me directly to find the best mortgage for your holiday let, call on 01732 471644 or email firstname.lastname@example.org.
*Rates as at 09/11/2020
Updated November 2020.