Just over three months on, that prophecy appears to be in the midst of fulfilment, as thousands of Britons elect to holiday nearer to home and property investors realise the opportunity that this presents.
Turner looks at what is causing the sharp uptake in interest in the holiday lets market, from borrowers and investors.
In many ways, circumstances are all converging at one time, to create an entrepreneurial spirit among property investors and momentum is building.
Last year, estate agent Savills analysed data which revealed 39% of Britons who purchased holiday lets in 2018 opted for UK properties. Prior to the financial crash of 2017, that figure stood at 14%.
In June 2019, Cottages.com reported a 23% increase in its holiday property portfolio in 12 months.
Leeds Building Society were one of the pioneers of holiday let mortgage lending in 2013. Matt Bartle, director of products, commented: “Demand has been growing for our products since then and we saw an almost 10% increase in Holiday Let mortgage applications in 2018 when compared with 2017, as landlords look to diversify their portfolios.”
Market demand
Brexit and economic uncertainty have created a market of Britons choosing the staycation option in 2019.
Passport and Customs uncertainty has led many people to elect to stay in the UK, rather than head to mainland Europe.
These people have joined the huge influx of international tourists coming to the UK and benefitting from the weaker pound.
The net result is an enormous market of people looking at short-term lets for their travels.
Tax differences
So, the market is there for the shrewd property investor. But the same is true of longer-term, more traditional buy to let. The big difference comes with the way the two entities are taxed.
Government changes to buy-to-let have seen a gradual erosion of the amount of mortgage interest tax relief that landlords can claim. By April 2021, landlords will be able to claim a flat level of 20% as a tax credit. In the past, they were able to claim 100% of mortgage interest.
With furnished holiday lets (FHLs), landlords can still claim 100% of the interest paid. What’s more, they can claim capital allowances on wear and tear and furniture replacement, while also potentially qualifying for capital gains tax relief as a business.
HMRC rules require the property to be available to let for at least 210 days and it must be let for at least 105 days in order to qualify for mortgage tax relief.
With many landlords seemingly using property as a savings vehicle for their future pensions, income from FHLs can also be invested in a pension where tax relief might be available.
Yields
Compared to other forms of letting and of course, subject to circumstances, yields on holiday lets can outperform more traditional forms of buy-to-let.
2018 data from holiday property fund, Second Estates, showed that landlords with holiday homes in Wales, were able to achieve yields of 11.7% over a 12-month period.
Northumberland came next, with yields of 11.5%, while the national average was 10.3%.
Yields will be dependent on a number of factors, including property value, the going rate for rent and the number of bookings, which also ties in with demand in the area.
Second Estates is predicting a further ascendency for holiday let yields over the coming years.
From 2018 to 2022, it forecasts an average 14% return across the UK, with the North West and East of England set to see returns in the region of 16%.
Rates
The last few years have seen an increase in the number of lenders offering holiday buy-to-let mortgages.
We currently work with 13 lenders and rates start from 2.44% for a two-year fix or 2.75% for a five-year fix.
The above rates are at 60% loan-to-value, although most lenders will expect you to put down a minimum 25% deposit.
Summary
The holiday lets market continues to thrive and attract interest from investors.
Undoubtedly circumstances have created the present situation and many buy-to-let landlords, feeling the effects of government changes, are looking to new, resourceful ways to maintain a profit.
My advice to anyone considering remortgaging and operating a holiday let, is to speak with a specialist first to fully understand the implications of costs.
A specialist broker can also help to outline each lender’s criteria around holiday lets and what they will expect from you.
As with all investments, I would urge anyone looking to borrow for a holiday let, to plan ahead, to understand the costs and obligations. It can be hard work to run a holiday let, but the statistics underline the potential rewards.
Commercial Trust Limited is the buy-to-let and commercial brokerage arm of the Norfolk Capital group.
The buy-to-let mortgages, commercial mortgages and bridging loans brokered by Commercial Trust are not regulated by the Financial Conduct Authority.
