Is now a good time to invest in a holiday let?
The UK holiday let sector has just experienced its most successful season yet, according to AirDNA, the leading short-term rental intelligence platform.
It revealed that in April 2023, demand for holiday lets in the UK finally returned to 2019 levels and as the summer approached, there was a notable increase in listings (15% compared to last year) and a rise in occupancy rates (1.5%) from the previous summer. In comparison to 2019, there was an even higher increase in both listings (8%) and demand nights (11%), making this the best summer on record for the UK’s short-term rental sector.
With demand for “staycations” evidentially skyrocketing, the tax advantages, and the potential for higher profits, it’s no surprise that short-term rentals are an appealing prospect for many property investors.
portfolio diversification
If you’re looking for a way to generate a profit from your investment portfolio, you could consider turning to short-term lets and holiday rentals. Standing apart from traditional buy-to-let properties, holiday lets offer more attractive tax allowances, including capital allowance if the property is a furnished holiday let. This can mean greater profits and more money in your pocket. With the rise of platforms like Airbnb, finding and managing holiday rentals has never been easier.
While a holiday let requires a different level of management than a buy-to-let, with more work involved during the turnaround between lets, cleaning, etc, once you get to grips with running costs and how the model works, it can be a potentially lucrative option.
With summer firmly behind us, now might be the ideal time for you to act if you’re considering acquiring these assets, giving you ample time to purchase, market, and secure bookings in time for summer.
pros vs cons
But before you do that, let’s explore some of the pros and cons associated with this type of investment.
Pros:
- Steady Income: Owning a holiday let can provide a stable source of income, especially during peak holiday seasons.
- Tax Benefits: There are potential tax advantages associated with owning a holiday let, including deductible expenses such as maintenance, mortgage interest, and more.
- Potential Appreciation: Properties in popular holiday destinations often experience appreciation over time, potentially increasing the value of your investment.
- Diversification: Investing in a holiday let can diversify your investment portfolio, potentially reducing risk.
Cons:
- Seasonal Demand: The income may fluctuate throughout the year due to seasonal demand, and some properties may sit vacant during off-peak times.
- Regulations and Compliance: There are specific regulations and compliance requirements for holiday lets, and staying updated with these can be demanding.
- Operational Costs: Maintenance, cleaning, and management costs can eat into the profitability of the investment, and unexpected repairs can also impact your return.
- Market Saturation: In popular tourist areas, there might be high competition, leading to potential challenges in attracting occupation
- Economic Volatility: The holiday rental market can be influenced by economic conditions, affecting travel and tourism, which in turn impacts the demand for holiday lets.
location matters
As well as the above, there are other factors that you need to keep in mind. Researching the location particularly. AirDNA noted that bookings in rural and scenic destinations are up by between 15% and 25% in 2023 compared to 2019. However, opting for somewhere that doesn’t rely solely on holidaymakers could help to provide you with a more consistent rental income. For example, locations like Bournemouth, Falmouth, Brighton – and even major cities such as Liverpool – all have sizeable student populations but are also tourist hotspots, meaning you have the option of letting your property – or properties – to students during term time and holidaymakers in peak season.
You should also consider what the property is made of. For instance, some lenders won’t accept cottages in Cornwall that are constructed from mundic concrete due to its composition.
financing a holiday let
As the market is still relatively new, lending options are limited and it remains quite niche, just as the buy-to-let market was before it took off in the 1990s. More lenders are dipping a toe in the water to meet increased demand from investors looking for increased returns but there is only a handful who are prepared to lend. Rates can therefore be higher than on standard mortgage products as a result (although, of course, this is also true of buy-to-let pricing compared with residential mortgages).
Bridging finance is proving to be a popular option, particularly for those purchasing a property in need of work and/or who wish to get it ready to let out in time to attract this summer’s holidaymakers. One of the big advantages of a bridging loan is its speed, with bridging loans usually arranged relatively quickly- typically within 2-3 weeks. There is still time to purchase a property, renovate it (if required), and have it ready to rent in time for the holiday season, after which time you can remortgage onto a term product. If the value of the property has increased during that time, you can also refinance at the new value and potentially capital raise to replenish refurbishment costs or utilise towards the next venture.
A bridging loan from MT Finance can be utilised for a standard residential purchase and suit investors who either need a solution at speed or are struggling to secure a holiday let mortgage.
product features:
- 1st & 2nd charge loans
- Loans from £50,000- £10,000,000
- Up to 70% LTV
- Terms from 1-24 months
- Adverse credit, CCJs and arrears considered
- No exit fees, no ERCs
- No credit scoring
get in touch
If you’re looking for both capital appreciation and income from your portfolio, purchasing a holiday let may be the answer. To find out more about how a bridging loan could help with a holiday rental purchase, we’re here to help. Simply drop us a line via our online form and a member of our team will be in touch shortly.