‘Incredible margins’ for holiday let business could tempt lenders to return

However, it is also one with significant risk attached to it which means many lenders are likely to hold off their re-entry until a potential second Covid-19 wave has passed.

In the space of a 15-minute announcement from prime minister Boris Johnson last week, the English holiday let market went from stone dead to red hot, with reports coming through of campsites, bed and breakfast and other accommodations booked up for months within hours as people seek a post-lockdown escape.

Lenders have reciprocated to a certain extent by re-entering or launching into the market, but there is still some uncertainty abound.

Brilliant Solutions managing director Matthew Arena said prior to the announcement demand for these mortgages was low, but enquiry levels have risen notably since.

“Whether it is your Airbnb-style or a more traditional holiday let, demand is incredibly high following the recent announcements,” he told Specialist Lending Solutions.

“With so many people furloughed and clouds over future employment prospects, staycations are surely going to see a big increase in popularity.

“All the signals are positive in this space, everything that is apart from the world’s great unknown, the infamous second wave.”

Volatile environment

Many holiday lets are booked through sites that permit short notice cancellations and while demand is high now, in such a volatile environment it could all so easily be turned off immediately.

Lenders who can understand and accommodate that situation could do well, but it needs that expertise.

“Asking lenders to make a risk assessment in that environment is incredibly difficult, that said, the fundamentals all look really strong at the moment,” Arena continued.

“That takes us to a place where those that can apply underwriting assessments that factor in the borrower’s ability to manage short term issues should be able to build a strong mortgage book of performing loans at some incredible margins.

“The flip side is, why would you take on the extra risk unless you had to? This level of risk versus reward lending is where you are seeing the experienced lenders return to the sector with tighter criteria to reflect the new conditions and increased pricing too.”

He noted this included Swansea Building Society, Principality Building Society and Furness Building Society.

“We have also seen the entry in the market from Roma, a lender that specialises in higher risk loans and is prepared to take a view on pricing for risk in a market that has understandably seen so many withdraw.

“While the sector should continue to defrost, only those experienced in the sector and hungry for margin will return in the foreseeable, if you are not in those camps then it is simply not worth considering. Expect a significant return when the risk of the second wave abates,” Arena added.

Being able to identify and understand the business sustainability of prospective holiday let borrowers will be vital for lenders to understand the risk they are taking on.

Running properties correctly

Connect Mortgages CEO Liz Syms is well positioned to understand this and how the market has been affected as she owns holiday let properties herself.

“Bookings have been cancelled and either rescheduled till next year, or payments refunded,” she said.

“Mortgage holidays have been of assistance, however, while the properties have stood empty, there have still been ongoing costs such as bills for utilities to continue to pay.

“That said, those that have been running their holiday let properties correctly as an official holiday let business as per HMRC requirements will have benefitted from government support.

“This includes the waiving of the business rates, and also the government grant of £10,000 per property,” she added.

Time for lenders to return

Syms too said she has seen bookings starting to fly in again for dates from July onwards when the restrictions will be lifted, and believes this gives an overall positive air to the market and demand for lending.

“I expect the UK holiday let market to now get very busy again while there are still problems and caution around going abroad,” she continued.

“Therefore, now would be a good time for lenders to come back to lending in this market.”