“Many take the approach of underwriting these properties as buy-to-lets based on market rent on an assured shorthold tenancy (AST) basis which may limit loan sizes, particularly if [the property is] in coastal areas not suited to standard residential letting,” she comments.
Do your research
So what do clients need to consider before entering the holiday let market?
Much like the residential BTL market, landlords will need to think carefully about the location of their property and the area's attraction as a holiday destination, and the potential for that property to be vacant, meaning there are likely to be fluctuations in income.
Source: The Sykes Staycation Index 2018
In other words, it needs to be treated like a business decision.
Mr Nyirenda points out there are various considerations to take into account when looking at this option.
“Firstly, research into the demand of the locations that are being considered is paramount,” he notes.
“The nature of the holiday let being seasonal means you can only rely on income for part of the year, so you need to make sure there is enough reserve to cover the periods where there is little income as the mortgage still needs to be paid.”
Mr Taylor agrees: “Landlords considering a holiday let property need to carefully consider the income they receive as the holiday season fluctuates depending on demand at different times of year, and as a result, must be attentive to the likely occupancy rates.
“Lenders also want to see that there are no property or occupancy restrictions which could hinder the re-sale of the property in case anything went wrong.”
Those clients who are hoping they can use the holiday home not just as an investment, but also as a place for them to take their own holidays should be aware that many lenders will not allow this.
Mr Nyirenda explains: “A lot of traditional holiday BTL homes have restrictions on how much of the year they can be let for or used for their own use, so a solicitor should be used to check if there are such restrictions on the title of the property before purchasing.”
He also points to the maintenance and upkeep of a holiday property, particularly if the owners live some distance from it.
“I would always recommend initially engaging a local letting agent to manage the property, especially due to the high turnover of guests in the busy season [which] makes this difficult to personally manage,” he suggests.
There is more on the tax treatment of holiday lets in the next feature in this guide but Mr Taylor notes: “There are advantages for holiday let landlords, with furnished holiday lets receiving a more favourable tax treatment compared to other residential property letting under HM Revenue and Customs (HMRC) rules.”
