How Holiday Let Can Deliver For Property Investors
One area of the property market which has had a particularly strong couple of years has been holiday lets.
It would be easy to suggest that the boom in holiday let was entirely down to the pandemic, and that interest would inevitably fall away once restrictions were removed.
While it’s true that the inability to holiday abroad boosted interest in staycations, the reality is that demand for domestic breaks has remained strong even now that flights are possible again. Eyes have been opened by holidaymakers of all kinds to the benefits of a break within the UK, perhaps on top of a holiday abroad, which is why demand remains high.
And investors are well aware of the continued attraction of such breaks, which is why the level of interest in the holiday let market from landlords is still so notable. A study by Hampshire Trust Bank earlier this year found that more than half of mortgage brokers have written a holiday let case this year, while just under half have actually seen interest increase since restrictions were lifted entirely.
This healthy level of demand is further borne out from the way that mortgage lenders are behaving. We have seen more lenders enter this space, opening up a greater range of options for would-be investors keen to add a holiday let to their portfolio.
That level of competition has not only meant a reduction in the interest rates charged, but also added more flexible options for investors. For example, we now have far more lenders who will allow investors to purchase holiday let products through a limited company structure, rather than in their own name, an investing technique that has become ever more popular over recent years in response to various tax changes introduced by the government.
Why holiday let is attracting investors
There are some clear attractions that the holiday let sector presents to property investors. The first is that it’s a form of diversification – it’s a different type of investment from a traditional buy-to-let, and so even if the regular rental market suffers a dip that doesn’t mean the holiday let sector will experience the same.
However, perhaps more eye-catching are the rental yields on offer. The fact that these properties rely on more frequent, shorter term lets mean that investors are able to benefit from higher rental incomes, potentially delivering more significant profits.
For example, a study from Sykes Cottages found that the typical holiday let property is bringing in £21,000 a year, though the most highly-sought after areas are likely to see even more significant revenues possibly. This is supported by separate research from PaTMa Property Prospector, which suggested that in some regions yields of as much as 8.52% are possible.
It’s also worth highlighting that holiday lets can be purchased with deposits of 25% or less, delivering a return on investment which rivals other forms of asset, with the added bonus provided by the security of the property itself.
While a holiday let may involve more overheads than regular buy-to-let – cleaning the property in between each stay, and implementing a booking system for example – those costs will likely be more than outweighed by the higher rental incomes generated.
A question of timing
The autumn is something of a down period for the holiday let market generally, since we are over the peak interest that comes from the summer holidays. As the schools return, fewer people are able to head off for a week or so on a break in the sorts of areas where holiday lets are popular, while the downturn in the weather can make such trips less desirable anyway.
This provides a perfect opportunity for investors to add holiday lets to their portfolio as not only are the purchase prices likely to be more attractive, but it also provides you with time to carry out any renovation or improvement work needed in order to stand out from the crowd and attract the right level of holiday tenant.
If you are considering adding a holiday let to your property investments, then the coming months may present the perfect time to do so.
Making the right decisions
The holiday let sector may be growing in size and importance within the property market, but it remains something of a niche area. As a result, despite the increase in lenders offering holiday let mortgages, relatively few come from names that might be familiar to many people.
That’s where mortgage brokers with expertise in this area of the market can come into their own. At Rose Capital we have helped countless landlords interested in adding holiday lets to their portfolios over the years, assisting them in finding lenders who are best placed to provide the funding they need at an affordable rate.
This is all the more important for those with complex incomes or who are looking to purchase through a limited company.
Not all mortgage advisers are familiar with holiday lets, so it’s important that you identify the adviser with the right experience to assist with your purchase. Partnering with the right broker can help you add to your portfolio in the most cost effective way, delivering greater results over the long term.