Why the prospects are still good for holiday let
By Tom Denman-Molloy, Intermediary Sales Manager, Mansfield Building Society
The coming year is likely to be another strong one for staycations.
Some might have believed that domestic holidays would no longer be quite so in demand with the pandemic (hopefully) now behind us. It was one thing to stick to holidays within the UK when it wasn’t possible to get onto a plane, but now that international travel is back to normal, who wouldn’t want to head off on sunnier climes for a week or two?
However, the reality is not so simple. There are many who have had their eyes opened to the potential for a restful break without having to cross international borders, free of the undeniable hassle that comes from heading overseas.
There is also the fact that a holiday within the UK is kinder on the family finances than a trip abroad. Given the rising living costs that we are all having to cope with, it’s inevitable that some who would ordinarily head overseas on holiday will be sticking to Britain in the coming years.
Given these factors, it is clear that staycations will remain attractive for the foreseeable future.
Adding diversity to portfolios
As a result, it’s no surprise that we have seen continued, healthy levels of interest in holiday lets from property investors.
These investors are aware of the demand for holiday accommodation within the UK, as well as the benefits such investments can add to their portfolio. The higher yields are an obvious selling point, but really it’s all about diversification. The demand for a holiday let will always be different from that of a regular buy-to-let property, free of whatever challenges the regular rental market may face.
Finding the right finance
For all of the demand from landlords, actually accessing the funding needed for a holiday let can be challenging.
Take affordability. As interest rates have increased in recent months, it has become more difficult for landlords to meet the ICR requirements imposed by lenders. While hiking rents could address this, it may equally dent how attractive the property is to holidaymakers who are ever more price sensitive.
If a lender can be more flexible, and consider top slicing - as we do at Mansfield Building Society - then investors can utilise any surplus income to make the sums add up and ensure that a viable investment purchase is not scuppered unnecessarily.
It’s all a question of attitude. While some lenders prefer to set strict boundaries over what will and will not be considered, others are more flexible. Just because there is something complex, something out of the norm about a case, that doesn’t mean it cannot be a success.
Delivering for investors
A recent case demonstrates how important that individual approach can be when it comes to supporting investors. We had an application for a holiday let property with a difference, a period property from the late 1800s. The home itself was unusual, given the materials used in the construction and the fact that there was a condition for right of way over the land.
Further complications came from the fact that the term of the loan would take the applicants to the age of 76, while our rental income assessment - which is based on the average of low, mid and high season income for the property - found the application coming up short.
However, by delving into the facts of the case, we were comfortable with the fact that the actual income from the property was sufficient to cover the mortgage payments, not only today but in the future should interest rates rise too.
A versatile approach can continue to support a vibrant sector
Holiday lets are a vibrant sector, and rightly winning the attention of all sorts of investors and lenders. Whilst consideration must be given to local communities on issues such as access to housing, UK tourism has the potential to be a strong economic exporter – attracting people from other regions, if not the world, to spend in the local economy.
Lenders who embrace a more versatile approach can continue to support a wide range of would-be and existing holiday let landlords through the current inflationary turbulence.
A common sense approach
If you've got a case on your desk that requires a common sense approach to lending then please pick up the phone to our Broker Support team on 01623 676360 or visit https://www.mansfieldbs.co.uk/intermediaries/.
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