Marketing No Comments

Short-term lets and holiday homes surpass buy-to-let income

Short-term lets – and specifically furnished holiday lets – are now generating greater profits for owners than the traditional long-term buy-to-let model, but there are downsides.

In the aftermath of the pandemic, short-term lets surged in popularity, when staycations became the only way – or the preferred way – to take a holiday compared with overseas travel. Even after Covid restrictions were largely lifted, more people still opted to holiday in the UK than pre-pandemic.

But the property type had already been rising through the ranks as a property investment option for a number of reasons, including recent buy-to-let tax changes that meant some landlords paid lower levels of tax on holiday lets than buy-to-lets.

Some recent research conducted by Hamptons, using official data from HM Revenue and Customs, has revealed that in the 2020-21 tax year, income for short-term lets in the UK hit £15,600, while traditional buy-to-let income generated £13,400. This is the first time income has been higher for holiday lets.

Contact us today to speak with a specialist Commercial Finance Broker to discuss how we can assist you.

Long-term landlords moving to short-term lets?

However, while there have been many reports over the past three years indicating that some landlords have ditched the long-term for the short-term rental option, the data reveals that in fact only 1.5% of all landlords are holiday let owners.

Therefore, the vast majority of landlords still see the highest value from their long-term rentals, putting paid to rumours of large numbers of landlords ditching the traditional buy-to-let model.

When looking at how the furnished holiday let industry has grown over the years, the study showed that 63,000 people made an income from 65,000 lets in 2020/21, up from 46,000 individuals who owned 50,000 holiday lets in 2011/12.

The report notes that there are two main reasons that the short-term lets sector has grown so much, the first being that the majority of such properties are used for both personal and commercial purposes. The commercial side in particular has grown in recent years, adding to the figures.

The other reason, as touched upon earlier, is the ‘staycation boom’ that boosted demand in the sector to a significant level, leading to more landlords and homeowners taking the opportunity to let out suitable properties to fill the need.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

More income, same profit

Interestingly, while the report demonstrates the overall increase in income generated from short-term holiday lets, it also notes that due to rising running costs, owners of both property types end up with “a similar amount of cash in their pocket”.

According to Hamptons, running costs for a holiday let consume around 43% of the total income, while costs for a buy-to-let are around 31% of the total rental income, not taking financing costs into account. Furthermore, incomes are also currently forecast to fall back to pre-pandemic levels.

The maintenance costs that come with a furnished holiday let can include regular cleaning services, more frequent replacement of equipment and appliances due to the higher number of different guests, and more general wear and tear to carpets, fixtures and fittings.

Often, landlords with holiday lets will employ an agency to deal with the general management of the property, including listings and comings and goings, which further adds to the costs of short-term lets.

On the plus side, aside from the higher income you could receive – particularly for a well-located, well-turned out property – you could also benefit from its use as a holiday home. The property must be furnished and available for at least 210 days per year to legally count as a holiday let, but the rest of the time you could you it yourself.

From a tax perspective, there can also be certain benefits to short-term lets, which you can read more about here. This article will also tell you more about the rules and regulations that apply to running a short-term let.

By Eleanor Harvey

Source: Buy Association

Marketing No Comments

Brokers expect rise in demand for holiday let loans

The vast majority (85%) of mortgage brokers expect an increase in demand for holiday let loans, Cambridge & Counties Bank has found.

Of this, 29% expect a significant rise.

Meanwhile, around one in 10 (11%) expect demand to stay flat and just 2% expect a fall in demand.

Simon Lindley, chief development officer at Cambridge & Counties Bank, said: “The UK is very likely to become a much more attractive holiday destination and one result is an expected boom in demand for quality UK holiday lets.

“The specialist lending market for this sector has historically been underserved but Cambridge & Counties Bank is focussed on leading the market and we firmly believe our product provides a dedicated solution in the UK.”

On average, brokers expect lending volumes to grow 11% over the next 12 months with 5% of mortgage brokers predicting volumes will increase by more than 15%.

The key reason given for the rise in demand from property investors for UK holiday lets was a direct consequence of Brexit and the fall in the value of the pound favouring UK holidays, as cited by 45% of brokers.

Other reasons included the favourable taxation for holiday properties (41%); an expected rise in UK holidaymakers choosing UK holidays over the foreign trips (40%); and an expected rise in tourists looking for UK holidays (37%).

Nearly three in 10 (29%) said that better yields from holiday lets versus traditional buy-to-lets was a key driver of growth.

However, almost half (45%) of brokers said that the market in lending products designed specifically to cater for holiday let investors was “under competitive” and ripe for new entrants.

Almost two thirds said products need to be tailored more for their specific needs and 26% found there is little differentiation in the market.

To further boost lending in the sector, two thirds of mortgage brokers (66%) said products should be made available for larger portfolios and borrowings.

In addition, two fifths of brokers said that mortgage terms should be lengthened whilst 31% said income criteria should be relaxed.

By Michael Lloyd

Source: Mortgage Introducer

Marketing No Comments

Brokers call for innovation around short-term lets

More landlords are looking at short-term and holiday lets and lenders have to match this interest with more innovation, brokers have claimed.

Andrew Montlake, director at Coreco, said few lenders would place holiday let cases, but Airbnb is a bit more complex and lenders are more selective.

He added other than rates, it’s location and short-term lets that landlords are looking for.

Montlake said: “There has to be more innovation around Airbnb and how lenders deal with that because that’s something a lot of portfolio landlords are doing with at least part of their portfolio.”

Michael Lawlor, business principal of Mortgage Advice Bureau in Finchley, added: “We’re getting more of these enquires, they’re very difficult to place and we’d like to see more options for landlords.

“I’m getting more enquiries for Airbnb than I’ve ever had so it’d be great if some other lenders joined that market to give more option to our clients.”

Adam Kasamun, associate director at LDNfinance, said if there are restrictions saying it has to be a holiday let then many lenders will not do it.

He said: “I think for people (landlords) to diversify they have to be able to take risks as well.

“HMO can be quite risky and there is a lot of regulation around it and with holiday lets, not many people want to do it.

“Airbnb, we know about that. It’s about maybe landlords being ahead of the curve.

“The limited company thing is a lot more mainstream than it was four, five years ago.

“More people are aware of it but the people who did it four, five years ago are seeing the benefits of it now because they were ahead of it. Do it now and you can make more from it.”

Jeff Knight, director of marketing at Foundation Home Loans, said that Foundation underwriters short-term let buy-to-lets in the same way as normal buy-to-let cases.

He added: “The only difference is that we do not ask for an AST (Assured Short Term Tenancy Agreement).

“By underwriting these in the same way gives the landlord the flexibility to revert to normal letting should they require to do so, giving fair customer outcomes.

“Having undertaken some landlord focus groups recently, I can say that this market will grow, albeit it will still be very much a niche area, as it gives portfolio landlords in particular opportunities to diversify their portfolios.”

By Michael Lloyd

Source: Mortgage Introducer

Marketing No Comments

Holiday lets generate highest returns in UK property market

Holiday lets are among the highest returning assets within the UK real estate sector, according to research from holiday property fund Second Estates.

Yields from holiday properties were 1.1 percentage points higher than those for residential buy-to-let properties over the last 12 months, and higher than all other major categories, according to the property group’s study.

The average weekly income for a holiday letting was £563 last year, compared to just £191 for an average buy-to-let residential property. Even when taking into account the off-season weeks, holiday lets generate nearly three times more income than residential buy to let properties.

The lettings data shows holiday lets generated an average net yield of 6.1 per cent over the last year. The next highest property asset class was student accommodation with a net yield of 5.25 per cent.

Meanwhile, the data showed that holiday lets are forecast to outperform other asset classes with an average total return of 9.3 per cent over the next five years.

Commenting on the data, Alistair Malins, CEO of Second Estates, said: “This research demonstrates the strength of the UK holiday property market as an emerging alternative asset class.”

Second Estate pointed to the strong increase in UK tourism, which has seen an increase of seven per cent last year, which is having a positive impact on UK holiday accommodation.

There are close to two million buy-to-let landlords in the UK, of which and an estimated 165,000 homes listed as holiday lets.

Source: City A.M.