A bumper summer for the UK ‘staycation’ market has prompted many investors to look afresh at opportunities for holiday rentals, and some brokers are reporting a surge in enquiries.
Quarantine restrictions and the travel chaos endured by many of those who did venture abroad have bolstered the appeal of British seaside and rural retreats.
But mortgage availability, while improving, has yet to catch up with demand.
Over the summer, there has been an increase in the number of holiday let products, albeit from a low base. Figures from Moneyfacts show that the number of deals on the market increased by 54 per cent from 74 in mid-August to 114 at the end of September. At the same time the number of providers in the market increased from 14 to 17, providing greater choice for borrowers. However, the cost of deals has also increased. The average fixed rate rose from 3.53 per cent to 3.72 per cent over the same timeframe.
A specialist broker in this field, House and Holiday Homes Mortgages director Mark Stallard, reports that business has been booming since the end of lockdown.
“In the past six weeks we have been asked about the top-four most popular areas: Cornwall, Devon, the Lake District and the Cotswolds,” he says. “But we have also had enquiries about properties in Kent and we have been asked about the Scottish islands. Lenders tend to be OK with those that have bridges, such as Skye, but are reluctant to offer mortgages on those without.”
My Continuum independent financial adviser Nathan Stacey has also been doing more business in short-term rentals across the Southwest this year. He says: “Many clients believe that the UK staycation market will remain strong even after lockdown restrictions ease, as some Brits still won’t feel confident about flying.
“The stamp duty break has also brought forward plans for those who were already considering buying a holiday let in a couple of years’ time. We are seeing investors finding properties where they can achieve a gross yield of 10 per cent, before tax and expenses.
“But one of the key advantages of holiday lets over other high-yielding investments like houses of multiple occupation is the tax treatment.”
If the property meets HM Revenue & Customs’ definition of a furnished holiday let, investors can offset mortgage interest and other costs such as energy bills, gardening and cleaning against their profits to reduce their tax bill. In order to qualify for the relief, the property must be available to let to holidaymakers for at least 30 weeks a year and it must be let for a minimum of 15 weeks a year. Lets of more than 31 days cannot be included.
In addition, investors can claim capital allowances for the cost of fitting out their property to appeal to holidaymakers and they may also qualify for certain capital gains tax reliefs when they come to sell.
Prolific Mortgage Finance managing director Lea Karasavvas says interest in holiday lets has been higher than he has ever known.
He says: “Some of our investors are looking to diversify their portfolio and maximise profit through seasonal rentals.
“Certain clients were put off by the higher rates involved but, if the demand continues, as I suspect it will, I anticipate more lenders entering this market and driving down rates.”
Worthing-based Gaia Financial director Kate Furzer says: “I have always offered advice in this area, but it was previously a smaller market, with buy-to-lets generally more popular among investors.
“This has changed dramatically over the past few months.
“My current BTL customers are now capital raising to buy holiday lets, while others who have spare cash are looking to purchase flats across the south coast.
“There can be issues, however, with flats that are sold as leasehold because holiday rentals may be classed as business use, which is often not acceptable to the freeholders.
“The main factor driving the increased interest in short-term lets is the potential for greater returns than from traditional BTL.
“I’ve seen one-bedroom flats in Worthing renting for £700 per month for long-term residents, but on Airbnb some are generating £120-£180 per night.”
The Buy-to-let Broker director Matthew Rowne has seen similar enthusiasm from his investor clients.
He says: “Professional landlords have reacted promptly to the increase in demand for UK holidays, with many purchasing property in key locations. The occupancy levels of British holiday lets are considerably less seasonal than many overseas locations.
“With the significant yields in comparison to mainstream, especially single-dwelling BTL, they present an extremely attractive investment to the committed landlord.”
Knowledge Bank chief executive Nicola Firth confirms that the mounting interest brokers are reporting is borne out by her company’s data.
She says: “We have seen an increase in searches for holiday lets over the past few months as more people look to take their getaways in the UK.
“Many brokers report placing cases with lenders they may not previously have thought of dealing with, for example, Monmouthshire, Mansfield and Market Harborough Building Societies.”
