Statistics from one holiday let mortgage lender showed a 30% jump in holiday let mortgage applications in the six months to March 2021. The average price of a holiday let purchase had increased from £387k in October 2020 to £435k in March 2021.
This is a 12% increase in just six months.
This appears driven by a restriction on travel abroad, the stamp duty extension and the ease at which holiday lets can be managed via platforms such as Airbnb and LateRooms etc.
The growth is somewhat different from the usual property price hotspots, with 70% of successful holiday lets being outside of prime locations. The most popular locations are the South West with 39% of purchases, followed by Wales at 19% and the North West at 12%. A long cry from the historic London centric house price hotspots.
What I am seeing is more demand for more flexible use of investment properties. For their use as second homes and as an investment designed to generate a return. This is very much a move away from standard buy to let and standard AST tenancies.
It is fair to say that I am seeing a movement in lender attitudes towards holiday lets. There are more lenders open to this use. It makes sense when you take the standard business principles of spreading risk and spreading concentration, multiple lettings provide for a more evenly spread risk than a single tenant, at least in principle.
The common question is how to work out what you can borrow.
Holiday let Mortgage – What Can I Borrow?
Every lender has a slightly different way of calculating this. The best way is to average out your income based on a low, mid and high season rate. This then needs to cover the interest cost of the mortgage based on a stressed interest rate.
This spreadsheet is a handy tool to use and works out what you can borrow:
If you are looking at buying a holiday let then it is worth getting the following from the selling agent at the outset:
- Last years bookings (or the year before due to Covid)
- Any future bookings already taken
- Details of where the holiday let is listed
- A breakdown of the costs linked to the property
In most cases the owner will have accounts for that particular property, obtaining these is always a great place to start. If the property hasn’t been let to its potential previously then find some similar comparables in the near area and work using those.
Any questions with it then let me know.
There are an increasing amount of good holiday let mortgage lenders, it just takes a little more thought to get the lending in place. If you want to look at borrowing then add your details below and we can chat it through.
By Dave Farmer
References: Hodge Bank research October 2020; Farmers Weekly – Diversification article; Mortgage Finance Gazette April 2021