In the first instalment of a series of blog posts looking at the popularity of holiday let properties and holiday let mortgages, we explore the current holiday let landscape.
One of the biggest trends to come from the past two years has been the resurgence in UK holidays and the rise of the staycation. With travel restrictions in place, isolation and lockdown restrictions plus the increased price of travelling, domestic holidays became more and more appealing. Combine this with travellers becoming increasingly conscious of their environmental impact and carbon footprint and it’s easy to see why holiday lets are becoming more popular, allowing people to enjoy numerous destinations around the UK whilst also helping to support domestic tourism. As a result, nearly one in five (17%) UK adults considered buying a holiday let property during the pandemic, according to our new survey (undertaken during February 2022 amongst 2,000 UK adults by research agency Opinium).
Somewhat surprisingly, it was the younger generation who led the trend, with those aged between 20-39 the most likely to have considered buying a holiday let over the past two years. However, it’s likely that when it comes to actually purchasing a holiday let property, it’s the older generations who are best placed to do so. Aside from typically having the disposable income available, many lenders have minimum age limits and a requirement to already be a homeowner or even a landlord.
Location, location, location
When looking at the location of the potential landlords specifically, it was clear that urban areas had the most wannabee landlords with living closest to London leading the way at 24%, followed by people in the West Midlands (19%). Finding an escape from city life is a clear driver behind those who are looking to purchase a holiday let, something that is supported when looking at the most popular destinations. Coastal escapes are the most popular choice with Devon and Cornwall the dream location of a majority of prospective landlords, with the Lake District, Peak District and Yorkshire Dales making up the top five.
When looking at the main reasons behind why individuals want to purchase a holiday let, location is the most important factor. Finding a property that is in or near beautiful scenery is the most important consideration for wannabee landlords, closely (31%) followed by a property near the beach or coast (30%). This is seen most obviously when compared with the most popular destinations.
Some of the other key considerations prospective landlords make when choosing a holiday let are the level of upkeep required, renovation potential, and its proximity to local amenities.
Tips for wannabee holiday let landlords
It’s easy to understand why the idea of owning a holiday let property has become so attractive, especially in recent years. However, there are a number of considerations that need to be made before a prospective landlord jumps in at the deep end. The first, and most important, is to ensure that all finances stack up appropriately, especially if a mortgage is required to purchase the property. It’s important to understand the criteria that lenders are looking for with regards to a holiday let property as it can be easy to fall into the trap of thinking it’s the same as a standard residential mortgage. It’s not. It’s even different from a standard buy to let mortgage.
With that in mind, we’ve pulled together our top tips for holiday let landlords who are looking to take out a mortgage when purchasing a property:
- A large percentage of holiday let mortgages require a landlord to either have a mortgage, own their main residential property, or already own buy to let properties. In some circumstances, they may even require a combination of these.
- Certain lenders impose age restrictions for first time landlords, even if they are already a residential homeowner and their financial situation is sound.
- Any affordability assessments on holiday let property are typically carried out on the property’s rental potential, as opposed to personal income and outgoing, however, the lenders will still want to know the applicant’s financial position.
- It’s likely that applicants may have to demonstrate a minimum income set by the lender. This income can often be a combination of employment, self employment, investments, pensions etc.
- Be prepared to show third party evidence of the anticipated rental income achievable, covering low, mid and high seasons from a verified lettings agent. This is required even if the owners aren’t planning on using an agency to manage the property.
- The property will also be assessed by the mortgage lender. With that in mind, it’s important to note that properties in holiday parks, caravans or lodges, and those of unusual construction methods may not always be accepted.
- Short term lettings sites such as Airbnb and Vrbo are not always allowed by mortgage lenders, therefore applicants shouldn’t assume they can market their property on these sites.
- Mortgage companies will allow the owner a certain level of personal use but this can vary between lenders so the owner should check this to ensure they don’t breach T&Cs.
- Does the mortgage lender limit the number of holiday let and/or buy to let properties a landlord is allowed to own? If an applicant already owns multiple properties this must be considered.
- Specialist holiday letting insurance is an absolute must and needs to be arranged with public liability cover (typically minimum £1m) included.
Applying for a holiday let mortgage is typically more complex than applying for a traditional residential property or buy to let. Therefore, it can be helpful to seek guidance from an independent mortgage adviser to ensure the application has the best chance of success. A mortgage adviser will also have a good understanding of the different criteria that mortgage companies request, in turn, helping prospective landlords find the most suitable product for their needs.
*Research was conducted by Opinium Research on behalf of Suffolk Building Society between 22-25 February 2022 amongst 2,000 UK adults aged 18+.