Holiday let mortgage choice has soared in the last year, but potential investors are being warned of new rules aimed at closing a tax loophole for second homeowners.
With foreign travel heavily restricted during the pandemic, increasing numbers of Brits chose to stay closer to home and this fuelled a huge growth in consumers investing in holiday lets.
Mortgage lender, Hodge, revealed it has received an increase in mortgage applications of 173% in 2021 compared to 2020.
In response to this demand lenders have increased their mortgage options, with the latest analysis from Moneyfacts revealing there were as many as 231 options available. This is treble that of August 2020 and a rise of 25% since September 2021.
But Moneyfacts said, whilst there were clearly more loan options for potential holiday let owners keen to invest in this booming area, there were a few things to consider before making the move.
One of which was new government rules due to be introduced in 2023 which may impact second homeowners if they cannot meet requirements for letting out a home. They are designed to ensure homeowners letting out a property were not abusing a tax loophole.
Rachel Springall, finance expert at Moneyfacts.co.uk, said, for this reason, it was vital anyone thinking of buying a holiday let spoke to an expert first.
“Seeking advice from an independent financial adviser before entering a holiday let arrangement and indeed a listing service is wise, particularly as new small business rates relief rules are to come into play next year,” Rachel explained.
Under the new rules, to qualify for business rates, holiday lets will need to be rented for a minimum of 70 days a year and available to be rented out for 140 days a year. Owners will need to provide evidence of this.
Rachel said: “The move is geared to protect genuine holiday lets and crack down on others, so it will be interesting to see how this will affect those considering an investment, but are perhaps not quite confident they can meet the new requirements.”
Lifting restrictions
One other factor which may influence the success of the holiday let market is the lifting of Covid restrictions. With people arriving in England or Scotland from abroad no longer having to take Covid tests if they are vaccinated, there is now one less barrier to travelling overseas.
Rachel said it was ‘unknown’ as to whether the holiday let market would remain as buoyant in the future.
She said: “If the demand for a UK holiday in 2022 lessens, consumers may still get a reasonable return on any investment, but it’s vital for them to ensure they are offering a let during a bustling season so they do not miss out on a demand spike.
“There may also be the need to fund upfront costs to get a property at a high standard to let, to entice a larger clientele and to stand above the competition.
“Should this be the case, borrowers will need to think carefully about what can make them a unique booking, and this will often depend on their location and the time of year.”
