A guide for owners:
In 2023, the allure of staycations is stronger than ever, as international travel takes a backseat. We spoke to the team at House and Holiday Home Mortgages to uncover essential insights for individuals contemplating an investment in a holiday let property, delving into specialised mortgages, risk assessment, lender criteria, timing, and the roadmap to secure a holiday let mortgage.
Is the thriving holiday let market in 2023 worth your investment?
Going abroad is so pre-pandemic. The staycation is here to stay… which means the holiday let market is booming. Latest figures from the 2023 Travelodge Travel Index show that Britons spent £20 billion on staycationing this year. This is double last year’s figures, and along with this, the demand for holiday let mortgages is rising.
If you're thinking of investing in a holiday let property, it's important to understand:
• Why you need a specialist mortgage.
• How to evaluate and manage risk.
• What criteria lenders look for.
• When to start the mortgage process.
• Your roadmap to getting a holiday let mortgage.
What makes a specialist mortgage essential for holiday let investors?
A holiday let mortgage is a niche financial product. It’s a type of mortgage specifically designed for properties that are rented out on a short-term basis to guests and holidaymakers. Perfect for those wanting to let a property via Cornwall Hideaways for example… Holiday let mortgages typically have slightly different criteria than a traditional buy-to-let (BTL) or residential mortgage.
Here are some of the benefits of a holiday let:
- Potential for high rental income: Holiday lets can generate high rental income. With an emphasis on location, they’re usually near tourist attractions such as national parks, beaches, walking routes or vibrant towns and cities. In other words, they’re located in places people want to visit. An attractive property in a prime location is the key.
- Personal use opportunities: You can stay in your holiday let if you’re the owner. Use it for quick getaways or family breaks. This can make it a more enjoyable investment than a traditional buy-to-let property. But even if you don’t plan to use it much yourself, you can always make it available to family members or friends.
- Tax benefits: Holiday lets may be eligible for a number of tax benefits, such as mortgage interest tax relief and business rates relief. This is something you’ll need to check with a tax specialist. Remember, it’s important to talk to a professional financial planner or tax accountant with special knowledge of holiday lets.
- Capital growth: Holiday let properties can also appreciate over time. Owning a holiday let property is often seen as a long-term investment. It might even be where you plan to settle during retirement. (This isn’t to be taken as investment advice. Please do your own thorough research and consider the risks!).
What are the key risks involved in owning a holiday let property and how can they impact your investment?
Well, some include:
- Vacancy risk: Holiday lets may not be rented out as often as you want. This can lead to gaps in rental income. If you have a holiday let mortgage, you need to make sure your property is let for a certain number of days each year. A good holiday letting agent can be worth their weight in gold!
- Time commitment risk: To run a successful holiday let property, you’ll need to factor in the amount of time it takes to do this. Using a letting agency who handle the bookings, customer handovers, cleaning and other management issues is a choice many owners make.
- Regulation risk: The government is considering introducing new regulations for holiday lets. Keeping a watchful eye out for any changes including new rules and regulations in the industry is important. Often these are location dependent. Research relevant legal issues about holiday let ownership in the area you’re interested in.
- Wrong mortgage risk: If you’re thinking about owning a holiday let property on a mortgage, you need to be certain you’ve got the right type of mortgage to avoid penalties.
Overall, buying a holiday let property can be a good investment for the right person. However, do your research and understand the risks involved before you decide whether to go ahead.
What are the consequences of using the wrong mortgage for your holiday let property?
If you’re on a BTL or a residential mortgage you’re unlikely to be covered if you switch usage and suddenly start running it as a profitable holiday let. Your lender will find out one way or another. They may see your listing for example. And once they discover you’ve broken the terms of your mortgage, there are consequences. A fine… or worse. It’s actually a form of mortgage fraud.
So, make sure you choose the right type of mortgage – one that covers your property. And if you’re not doing things by the book now, your priority is to get that sorted ASAP.
What are the common lender requirements for a holiday let mortgage?
A good mortgage advisor will be able to find a few deals for you to think about. It’s worth knowing that the standard criteria for a holiday let mortgage can vary from lender to lender.
Having said that, there are some common requirements, such as:
- A minimum deposit of 20-25%.
- Good credit score.
- Positive rental income potential.
- A stable income.
- Being a property owner already.
- A potential holiday let property which meets the lender's requirements.
There are exceptions to all of these, but use them as a good guide. As with any other mortgage, you’ll need to get your documentation together and be certain you’re absolutely clear about all the details, terms, and conditions before making your application.
What unconventional mortgage options exist for holiday let properties, and what should you consider before pursuing them?
In addition to traditional holiday let mortgages, there are a number of quirky possibilities for financing your holiday let property. For example, some lenders offer mortgages on unusual construction types.
Others will look at properties with restrictions, i.e., those that can only be used in a certain way or for a certain amount of time, and because wetlands can be very popular with tourists, some lenders offer mortgages for properties in flood risk areas. However, these may often require higher deposit requirements and stricter lending standards.
Deck access is a popular feature for holiday lets, but it can also increase the risk of accidents. If you’re looking at something with deck access, it’s worth knowing that although there are lenders offering mortgages for this type of property, they might require additional insurance.
Remote locations can be attractive for holiday lets. But they can also make it difficult to manage the property. So long as it’s possible to access the property, even if it’s remote, especially if it’s in an area beloved by ramblers or nature lovers, it’s worth looking into the possibility of getting a holiday let mortgage. However, if a lender is offering mortgages on properties that are remote, they may require you to work with a local property manager.
Always highlight any potentially tricky aspects of your situation upfront to ensure you find a lender who is willing to help. It’ll save you time – and probably money too.
When is the best time to start the holiday let mortgage process?
It’s not an exaggeration to say that starting the mortgage process early is wise.
And even if you’re not yet ready to buy a property, getting your ducks in a row will help you understand how much you can afford to borrow.
- Get a letting forecast from a holiday letting agent
- Most purchase mortgage offers will have a 6-month period on them.
- Remortgage offers will range from about 3-6 months.
This means that if you’re an existing holiday let owner it’s worth considering your next mortgage product about 6 months from your rate expiry date.
How can you navigate the holiday let mortgage roadmap effectively?
Bear in mind that most High Street lenders don’t offer specialist holiday let mortgages. Once you’ve found your property and got a forecast of the letting potential, it’s time to find out about lenders in the holiday let property niche. Make sure you understand all the fees and charges that may apply, and if this seems like a lot to plough through, it is a good idea to seek professional advice from a mortgage broker. There are specialist brokers who understand the holiday letting market and can find the right product for you. They’ll also guide, advise, and support you throughout the process.
What insights and trends do you foresee in the holiday let mortgage industry for 2023 and beyond?
We’re hoping to see more lenders offering a wider range of holiday let products, potentially more through limited companies as options there are fewer than in individual names currently (September 2023).
And we’re also hoping lenders become more open-minded when it comes to quirky properties. In the holiday let market, quirky is often more popular with paying guests. Many people are looking to holiday in something more unusual, beautiful or unusual. More instagramable...
We’d also love to see more lenders prepared to look at mixed use. That’s where the mortgage covers both residential and holiday let usage. The mix of regulations here means that most stay away from that main house with a lettable annexe scenario!
What services do House and Holiday Home Mortgages offer to those interested in holiday lets, and how can they get in touch?
We are specialist mortgage brokers who specialise in UK holiday property. This article has been put together in September 2023 and is accurate at the time of publishing. Of course, things can change so always get specialist help and check on your own personal circumstances.
If you want our help with a holiday let purchase or remortgage, then please contact us on 01453 887179 or hello@hhhmortgages.com for a no-obligation conversation.
As a brokerage, we do charge fees, but only once we’ve got you a suitable formal mortgage offer, so there’s no cost to find out if we think we can help you. Or we’ve got lots more information on our “Advice and Guides” page on our website.
You can also connect with our director, Joe Stallard, on LinkedIn for frequent holiday property updates.
In summary, the 2023 holiday let market is booming thanks to the rise in staycations. We're grateful to House and Holiday Home Mortgages for their insightful discussion on holiday let mortgages in 2023. While these mortgages have unique benefits, they also carry potential risks, emphasising the need for the right mortgage choice. Starting the mortgage process early and consulting professionals is key. Looking ahead, more lenders may offer diverse holiday let options, creating exciting opportunities for investors.
If you're considering investing in a holiday let, discover how Cornwall Hideaways can assist you! From promoting your property to managing bookings and maintenance, we aim to make letting your holiday home as stress-free and simple as possible. Explore our website or reach out to us today.