According to research from Moneyfacts, buy-to-let mortgage options available for holiday lets have gone from 74 in August last year, to around 186 options.
The research showed that 25 lenders were now offering holiday-let deals, up from 14 in August last year largely boosted by building societies.
Yet the average fixed rate for a holiday-let product has grown from 3.53 per cent in August last year to 4.14 per cent in September this year.
The report also cited research from Hamptons which founds there were 1,404 new holiday-let incorporations in England, Scotland and Wales between January and June, which is the highest since records began in 2007.
Moneyfacts finance expert Rachel Springall said that it was “positive” to see the growth in product choice but it was still a relatively niche market with less than 200 deals available.
She said: “Whether the appetite for staycations falls in 2022 is unknown but for the moment it’s evident landlords are taking advantage of the opportunity to earn an income through holiday lets. Those who may have saved some additional disposable income during the UK lockdown, or are looking for alternative investment opportunities, may then be keen to get involved.
“Undertaking thorough research into popular locations, weighing up tax benefits, reading up on rules regarding residency periods and other potential expenses outside of utility bills can feel daunting, so seeking advice before entering an arrangement is wise.”
Holiday let demand expected to grow
Brokers overall said that they expected demand in the holiday-let sector to continue to grow, adding that they were already seeing an increase in enquiries.
Matthew Rowne, director of The Buy-to-Let Broker, said: “Holiday lets are going to be a big thing over the next three to four years, we have already seen a massive increase in enquiries.
“We are in a privileged position where a lot of lenders will come to us about where they sit in the market, so we know other lenders that will imminently come into it.”
He added that the sector is likely to continue to expand as people may not be comfortable with travelling abroad, therefore staycations would remain popular and appeal to landlords.
He added that a benefit of the UK holiday-let market was that it wasn’t as seasonal as traditional holiday lets in Spain, for example, owing to the popularity of city centre breaks in the UK as well as country locations which have more year-round appeal.
Rowne added that the “incredibly high” pre-Covid yields for holiday lets had grown even higher.
John Charcol’s product technical manager Nicholas Morrey said that the boom in UK holidays would likely be around for a few more years as restrictions on travel and the impeded ability to go to Europe due to Brexit would encourage people to holiday at home.
He added that lenders had been reviewing their holiday let criteria to increase or maintain their market share, with some re-entering the space altogether. Although none of the big six lenders had stakes in the space currently.
“This year is not typical of the demand there will be in years to come”
Just Mortgages’ national operations director John Phillips said that he had seen growing demand from clients but said that they should take a “note of caution”.
He said: “It makes sense that people want to enter the market as the returns on holiday-lets can be significant. The market this year is not typical of the demand there will be in years to come, however.
“With Covid there has been a huge demand for staycations, but once everyone can go abroad again, it is unlikely that as many people will look to the UK for their holiday.”
Phillips added: “Many of the people looking to buy are professional landlords, but even then, I would advise them to look at where the market is going and ensure that they can afford the property even when we return to a more normal scenario with the bulk of the population holidaying overseas.”
Morrey said that criteria was still restrictive.
He said: “What hasn’t changed much is the acceptance criteria which is still quite tight or onerous. In defence of lenders this is a relatively high-risk lending strategy since if or when holiday-let borrowers struggle to rent out these properties they will have to find hundreds of pounds every month until they do or sell up. As there are no assured shorthold tenancy in place the income streams could dry up very quickly indeed.
“In a few years lenders will have to look at this as a possible outcome for the duration of the mortgage, which could be 20 years or more – not two or three.”
He added that Airbnb was still quite a contentious area for lenders, as the list of those who would agree it as an income route was “quite short but growing”.
Morrey said that it would be challenging for lenders to assess this variable income stream, but more work should be done to work with Airbnb as there is more data to support applications than there was a few years ago. He also noted that the data would show the effect of the pandemic, Brexit or other issues over a period of time.
He added: “Currently, given the sheer numbers of properties on Airbnb, I fear many second home-owners are using Airbnb without permission so I suspect the problem for lenders with borrowers breaking their terms and conditions is here already.”