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Landlords chasing high returns ditch standard rental properties for holiday let, brokers say

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  • 30/03/2022
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Landlords chasing high returns ditch standard rental properties for holiday let, brokers say
The increased demand, yield potential and regulatory flexibility of holiday let has inspired buy-to-let landlords to convert long-term rental properties to short-term accommodation.

 

Doug Miller, director at Lansdown Financial Services, said the staycation boom – particularly during the pandemic – had “challenged your average property investor’s typical thinking”. 

Although some of his standard buy-to-let clients seemed wary of the uncertain return and irregular income of a holiday let property, Miller said his firm had seen those with larger portfolios diversify to “chase the much higher returns on offer”. 

Joe Stallard, director and adviser at House and Holiday Home Mortgages, said a mixture in property type investment was becoming more desirable. 

He added: “We have a number of professional landlord clients who are looking to shift the balance of their property portfolios.  

“Mostly we’re seeing them selling what they determine their ‘weaker’ buy-to-let properties and are looking to reinvest those funds into holiday lets, where the same regulations don’t necessarily apply yet.” 

He said this change was also evident among the “casual landlord with just one buy-to-let”. 

 

Flexible environment 

Brokers said the less regulated holiday let sector was attractive to investors. 

Although this may change to prevent people from avoiding council tax by claiming second homes as holiday lets, for a property to qualify it must be furnished and available for letting for at least 210 days a year. To benefit from the furnished holiday let tax status which enables owners to claim certain reliefs, the property must be commercially let for at least 105 days. 

At the same time, the private rental sector has come under increased regulation. The most recent update is the proposed requirement to bring rental properties up to an energy performance rating of C or above by 2025. 

Darryl Dhoffer, mortgage and protection consultant at The Mortgage Expert, said: “A lot of landlords either haven’t got the money to do the necessary upgrades required to get them to the correct rating – either for resale or remortgage.” 

The 105-day threshold also means owners can stay in their properties for up to 22 weeks a year, which Rob Peters, principal at Simple Fast Mortgage, said had an appeal. 

Stallard said: “The combination of feeling forced out the market due to regulation, plus a better understanding of the holiday let opportunity, where they can use the property themselves too, has really meant landlords we’re speaking to are considering their positions carefully.” 

Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, agreed this was also a driver.  

He said: “When all the rules around income tax calculations on rental properties came into force and reduced the net earnings for many landlords, certain types of holiday let property were excluded. So you can get a tax advantage in a holiday let over a normal buy-to-let property.” 

Miller said this, along with the “very relaxed mortgage underwriting criteria”, would result in the holiday let market increasing further. 

Additionally, the ability to have a short-term let be managed by a third party can also add to its desirability. 

Lewis Shaw, founder of Shaw Financial Services, said: “Now with sites such as Airbnb taking care of much of the booking and admin headache, we’ve seen landlords turn their eyes towards the coast.  

“In actual fact it may turn out to be a real winner because given the rises in costs of living it’s likely a lot of people won’t be able to afford to get to the beaches of the EU so there’s likely higher demand for breaks in good old Blighty.” 

 

Other opportunities 

Transitioning to holiday let is not the only change brokers have noticed among landlord clients. Peters said they were also turning to more complex property types to increase returns. 

“Houses in multiple occupation purchases and conversions have increased as have multi-unit freehold properties. These types of investments do bring their own complexities and risks, and it’s important potential investors go in having done solid research and with an awareness of what is required,” he added. 

Dhoffer said the “tall order” of making landlords improve the energy efficiency ratings of homes by 2025 had resulted in property investors selling off some of their assets completely. 

He added: “I think we’re going to see a flood of properties coming to the market, particularly older ones.  

“I know firsthand from a friend of mine who has a portfolio, he can see this coming.” 

Stallard said rather than landlords having to choose between standard rental properties and holiday accommodation, there was scope for lenders to potentially bring these two investment types together. 

He added: “Interestingly, we’re seeing a growing demand for holiday let and buy-to-let hybrid mortgages, where the property can be tenanted in the winter and let out to holiday makers in the summer. There’s a real opportunity for creative product development in this area.” 

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