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Buy To Let

Landlords ditch standard rentals for ‘lucrative and flexible’ holiday lets

Paloma Kubiak
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Paloma Kubiak

Landlords are giving up on standard buy-to-let properties, turning their attention to holiday lets instead.

Buy-to-let landlords, saddled with more rules and regulations, are increasingly converting their long-term rental properties to short-term accommodation, brokers reveal.

They say landlords are looking to capitalise on the increased demand, yield potential and regulatory flexibility of holiday lets, spurred on by the pandemic and growing awareness of the climate change crisis.

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

He says his firm has seen those with larger portfolios diversify to “chase the much higher returns on offer”, while Joe Stallard, director and adviser at House and Holiday Home Mortgages, said a mixture in property type investment was becoming more desirable. 

He adds: “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.” 

But it seems smaller landlords are also catching on as the shift was also evident among the “casual landlord with just one buy-to-let”. 

Just last week, revealed how professionals sisters received an eviction notice from their landlord who planned to convert his BTL portfolio into holiday lets along the Bournemouth coast.

Less regulation and greater flexibility

Brokers say the less regulated holiday let sector was attractive to investors, though uncertainty remains around any future tax changes and their implications.

The government is already clamping down on people avoiding council tax by claiming second homes as holiday lets. In order to qualify for relief, a property 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, says a lot of landlords haven’t got the money to do the necessary upgrades required to get them to the correct rating – either for resale or remortgage.

As such, this EPC “tall order” has resulted in property investors selling off some of their assets completely. 

But for those committed to the market, the 105-day threshold for holiday lets means owners can stay in their properties for up to 22 weeks a year, which Rob Peters, principal at Simple Fast Mortgage, says is an added appeal. 

Stallard adds: “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.” 

But he adds that 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. 

“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,” he says. 

For Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, it comes down to earnings and tax advantages. 

He says: “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.” 

Holiday let boom

Given the industry changes facing BTL landlords, coupled with the “very relaxed mortgage underwriting criteria”, Miller predicts the holiday let market will expand further. 

Indeed, research by Suffolk Building Society reveals nearly one in five UK adults (17%) contemplated buying a holiday let property during the pandemic amid travel restrictions, higher flight prices, a growing awareness of the climate and the appeal of staycations.

Devon and Cornwall were the locations most wannabee holiday let landlords were considering, followed by the Lake District, Peak District and Yorkshire Dales.

Further, it has seen the volume and value of completions for new holiday let purchases double between 2020 and 2021.

Additionally, brokers say their clients value the ability to have a short-term let managed by a third party.

Lewis Shaw, founder of Shaw Financial Services, says: “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.” 

However, Charlotte Grimshaw, Suffolk Building Society’s head of intermediary relations, says brokers may need to manage expectations as many lenders’ criteria include minimum ages and a requirement to already be a homeowner.

“As part of the discussion around holiday let criteria, this may even include signposting clients down the buy to let route as a means of gaining additional income and experience with longer term tenants, before borrowers branch out to holiday let later down the line,” she says.

Grimshaw adds: “Before potential owners jump on the holiday let bandwagon, be aware that not all lenders will allow them to market their property on short-term lettings sites such as Airbnb and Vrbo, and that properties in holiday parks, caravans or lodges, and those of unusual construction method may not always be accepted, for example.

“It’s easy to understand why the idea of owning a holiday let home is so attractive. As people were limited to holidaying in the UK, often within an area they know and love, their eyes were opened to the opportunity of increasing their income, as well as enjoying a property for personal use too. However, take the time to understand the market, and check out the competition before falling in love with a property that isn’t viable in terms of lettings.”