12 April 2019
Rising demand leads to more holiday let mortgages
The growth in popularity of ‘staycations’, where people holiday at home rather than travelling overseas, has led to an increase in holiday lets.
While Brexit uncertainty shows no sign of diminishing and tax changes make buy-to-let less attractive, some investors are shunning the long-term lettings market. Instead, they are looking at shorter-term furnished holiday lets – whether it is a waterside property in Dorset or flat in Bath. The achievable yield from an Airbnb-style let is attracting investors and consequently supply.
In the past, if you wanted a holiday let mortgage you would have to go to a regional building society but specialist buy-to-let providers have moved into the market as demand has grown. Even so, the longer-term market remains much better served, with cheaper rates and higher loan-to-values.
Holiday let mortgages carry a number of restrictions, with some lenders limiting or forbidding the owner to occupy the property. Lender criteria may also be more restrictive, requiring higher incomes, high interest coverage ratios and stress rates. Borrowing may still be governed by the rental income achieved via a traditional assured shorthold tenancy (AST) even if the yields from shorter-term lets are higher. Some lenders also charge a premium on the rate – for example, one lender charges 2.69 per cent on a two-year fix for a holiday let compared with its standard buy-to-let equivalent of 1.69 per cent.
Ultimately, every lender has different rules so consult a broker if you are interested in a holiday let mortgage.