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Holiday Lets: Why You Should Invest Now

Holiday Lets: Why You Should Invest Now

Although health and hygiene are still at the forefront of our minds, the COVID-19 lockdown has increased our desire to escape our homes, while keeping safe. Head of Commercial, Andy Elley, explains how the pandemic has set the UK holiday let market to soar in 2020 and beyond, and how you can benefit too.

After months of cabin fever, the easing of lockdown rules has left thousands of us desperate for a change of scenery. However, as with almost everything in our lives, Coronavirus has altered how we’re able to do this. Surprisingly, this is now benefitting holiday let owners up and down the UK.

Holidays “At Home”

Although international travel is not entirely off the cards for some this summer, there’s no denying that, whether it be for financial or health reasons, the majority of us will not be venturing outside of the UK. However, this doesn’t mean that we all want to continue to stay at home for the next six months.

The day after the Government announced it was relaxing lockdown rules for parts of the hospitality industry, including allowing people to stay in self-catered accommodation, UK holiday booking sites saw record activity. Such is the demand for a holiday, one company had a new booking every 11 seconds! The surge in demand for a staycation doesn’t look to be wavering anytime soon; in fact, some of our holiday let clients have reported that they could easily have booked their properties two or three times over for the rest of the year! Such is our desire to stay somewhere other than our own home, the traditional booking season from June to September has extended well into the autumn.

As no-one really knows how long it’ll be before life returns to ‘normal’, it’s more than likely that many will continue to opt for holidays ‘at home’ for quite a while longer. So, if you’re looking for a profitable property investment, a holiday let is likely to serve you well!

Types of Holiday Let Property

Until COVID-19, we were seeing a significant diversification in types of holiday let properties. While countryside cottage retreats have always been popular, in recent years the rise of Airbnb has paved the way for city break bolt-holes and we were sourcing finance for a greater range of properties in all kinds of locations.

However, lockdown seems to have changed people’s preferences again. The shift in priority for more space and gardens in the home-move and rental property markets is mirrored in the UK holiday demand; people are flooding back to the open space of the countryside. This trend is probably also driven by the view that infection rates are lower in these areas.

Attitudes towards hygiene have also shifted the types of properties we’re looking to stay at. While hotels and bed and breakfasts can and have reopened, many holidaymakers are opting for sole occupancy, self-catered accommodation as they offer a lower chance of being exposed to COVID. Now that lockdown rules in England allow for two households (up to 30 people) to gather indoors, larger self-contained properties provide a fantastic opportunity to see friends or family and get away from home for a while. These properties tend to let very well anyway, but as restrictions continue to lift we’re predicting even more demand for larger holiday let properties as people come together again.

Changes to Stamp Duty Land Tax

In addition to the surge in demand for these types of property in England, the Government’s temporary Stamp Duty Land Tax (SDLT) cut poses an excellent opportunity for both experienced and new holiday let investors. Holiday lets are considered residential property so you will benefit from not paying any initial stamp duty on the first £500,000; however, it is important to note that the 3% surcharge for second homes will still apply if you own any other residential property. 

For example, before the changes a holiday let property costing £675,000 would have cost:

3% up to £125,000 = £3,750

5% of £125,000 (the amount between £125,000.01 - £250,000) = £6,250

8% of £425,000 (the amount between £250,000.01 - £925,000) = £34,000

Total SDLT payable: £44,000


Under the temporary SDLT rates:

3% of £500,000 = £15,000

8% of £175,000 (the amount above £500,000) = £14,000

Total SDLT payable = 29,000 (£15,000 saving)

How to Finance Holiday Let Properties

There are two main ways holiday let mortgage lenders calculate affordability.

The most common method used by the lenders for debt service cover is the property’s fallback Assured Shorthold Tenancy (AST) rental income (the income it would generate being a standard buy to let property), which is often lower than the projected holiday let income. This can mean that for higher valued properties based in rural locations, getting the higher loan to values (LTVs) required for the purchase can sometimes be problematic. Although we do have access to lenders which will consider applications from individuals at 70% LTV with ‘top-slicing against personal income’ as a way to make the deal work.

The second way lenders will calculate affordability is based on projected holiday let rental income (less agency bookings costs which range generally from 14% to 20%). Often, it’s possible to leverage more borrowing for the property purchase based on these figures, although lenders will tend to need a reputable holiday let booking agency to provide the figures. Some lenders may use an average of high, medium and low season rental figures based on 33 weeks of bookings.

If the above isn’t an option for you, then it is possible to strengthen an application with supporting security. We can arrange finance where the lender has a first charge over the holiday let property and a second charge over the applicant’s residential home or another equitable property in their portfolio.

Although the mortgage market has decreased slightly during the pandemic, we still have access to six lenders who will lend to Limited Companies and eight who will lend to individuals or partnerships. Currently, rates start from 2.49% (discounted) for individuals and from 3.24% for Limited Company. We also have access to holiday let mortgages up to 75% LTV for loans over £500,000! As the demand for holiday lets continues to grow, more lenders are entering the market with new products every week. With any luck, this increase in competition will push mortgage rates for holidays let properties down even further!

How you invest in your holiday let property, whether as an individual, Limited Company or Trading Limited Company, has its own tax benefits and drawbacks depending on your circumstances. We strongly recommend that you should always seek tax advice from a professional tax advisor before making a decision. This April was the first tax year that buy to let landlords could no longer offset any mortgage interest against their income, and many are now looking for a more tax-efficient form of property investment. To benefit from holidays let property from a tax perspective (as there are still many taxable allowance offsets available in this sector), the property must be available to let for at least 210 days a year, and to be actually let for 105 days. However, you must speak to a tax advisor to make sure this is the most suitable option for you.

If this has ignited your interest in investing in this area of property, speak to one of our expert consultants today to get a better idea of the type of property finance that might be available for you!

If you’re investing in the Midlands, North West (including North Wales), the North East or in Scotland, please call our Manchester team 01625 416391.

For investments in the South West, East Anglia, South East or Central and Southern Wales, please call our Kent office on 01732 471606. 

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