This is perhaps unsurprising. With holidays abroad still looking unlikely this summer, anyone who has invested in short-term rental property in a popular holiday location is likely to see a huge amount of demand and be able to price accordingly.
Running a holiday let is different to a standard buy-to-let investment. It is more involved, with a higher turnover of people in the property and cleaning and laundry costs to consider.
It’s more akin to running a trading business than holding a property investment, and is taxed as such, which can make it more attractive to some investors as more of the costs can be offset against profit.
This, combined with potentially higher yields, makes it easy to see why so many investors are looking to move into the holiday let business.
However, buying a first holiday let as an investor is not always easy. Many lenders ask for a track record of previous holiday lets, or at least a track record that the property has been used previously for holiday rental.
Bridging the gap
So, if it’s not possible to provide either of these, what are the options?
One way to help your clients invest in their first holiday let is to use bridging to buy the property as criteria is often more flexible.
You can then arrange to refinance onto a term mortgage once there is some track record in place. The downside of this is that it can prove expensive if your client is unable to secure a suitable exit route in good time.
But there is a way of protecting against this at the outset.
Much of the demand we’ve seen from holiday let investors is for a bridge-to-let product. These products offer the flexibility of bridging combined with a guaranteed exit onto a term loan at the outset, so clients know they won’t be stuck on bridging finance indefinitely.
If it’s possible to demonstrate the track record of the holiday let before the end of the bridging term, borrowers can switch over to the term finance sooner.
For example, our minimum requirement on the bridging section of the loan is three months’ interest.
Bridge to let enables first-time holiday let investors to access a new investment area with the confidence of a guaranteed exit as well as the added benefit of achieving that exit sooner if they are able to get up and running quickly.
So as we all consider another summer on our shores this year, your first time holiday let clients can turn to a bridge-to-let deal to get started.