You can see why our knowledgeable clientele are rushing towards these opportunities.
Great returns, even in low seasons, coupled with the added bonus that it’s something the family can also enjoy, creating memories as the kids grow up.
Beautiful places around the UK such as Cornwall, Devon, Norfolk, Pembrokeshire to name but a few, have beaches that compare to some of the finest overseas but as they are UK based, often get forgotten.
Well not anymore.
Now more than ever, the attraction of seaside towns are a little more astute than arcades, ice cream parlours and dodgems.
Coronavirus travel restrictions, quarantine rules, and genuine fear by many to travel, have seen a huge upturn in enquiries and it turns out these little beauties can be quite an investment.
Missing lenders
One thing, however is missing. Where are the lenders?
Many mutuals have been supporting this type of investment for years but the high street banks are not at the table.
The result of this is that a currently thriving market has very little competition on price. With minimal competitors, there are no price wars so rates are fairly high.
The calculation of what can be used varies from lender to lender, but common place is to find the median of the low, medium and high seasonal rental figure which is normally driven by a reputable local agent.
Lenders will then work off a weekly numerical value, which seems to be 24 in today’s climate but was normally 30, and this would then be worked back on a stress test to give the borrowing potential.
With astronomical increases in rent due to demand, this can result in a higher average, meaning higher borrowing can be available.
Others will tend to work off the “safer” aspect of a normal assured shorthold tenancy (AST) but the downside here is that it may not generate the same kind of leverage.
But lenders need to take stock of risk, and many want the assurance that if any defaults occur, the property can be let on a standard AST while they recover the debt.
Funding exhausted
West One are a relatively new addition to the funding of holiday lets but see a potential gap in the market that they are targeting. Is this a trend we will see from others?
In what is a growing market, some of the smaller building societies have mentioned they have had to withdraw due to allocated funds already having been exhausted.
This in turn will result in even less competition and as we have seen in the residential space, an increase in margins due to restriction.
I spoke with one lender last week and was amazed to discover their annual holiday let funding budget had been exhausted as early as May this year, due to the huge increase in demand, so more additions like West One are certainly needed for the benefit of the borrower.
But will we see a rush to assist?
Valuable assets available
As people flood to invest in homes in the coastal regions, surely only one thing can happen – this huge increase in demand will result in a lack of supply, especially given such areas are very limited.
The result, one would expect, will be a heavily weighted gain, that will outperform the saturated markets of previously popular investment such as Manchester, Liverpool, Leeds and such where investment opportunities are abundant.
This may be a flash in the pan but speak to most brokers and you will get the same answer: holiday let enquiries are higher than ever before, and at present a quick search on Rightmove shows what bargains are to be had.
If this market gets supported by more mainstream lenders it could see a real boom in the next 12 to 18 months.
Like all investments, it will have its pitfalls and drawbacks but at present it looks like many people are seeing the merits of such an investment and the availability of these will reduce, making them all the more valuable as an asset.
I guess the next question is, who will join the mutuals and support what looks to be a growing sector?
Lenders, it’s over to you.
