Here at 978 Bridging, we’ve been getting an increasing number of requests for BTL – Holiday Lets in the last month. This makes a lot of sense as the pandemic has caused many people to reconsider overseas holidays in favour of ‘staycations’. There has even been a jump in the sale of new motorhome and campervan registrations with a 40.9% rise versus August 2019. In the office I often overhear staff talking about how they are excited at having a city break or a country retreat in the UK. This is great news for the UK Tourist economy and a big change for those that would normally holiday in Spain or Greece.

There has been an increasing number of lenders willing to accommodate these types of loans as well. In the past 6 months mortgage options have increased by 45%, albeit off a limited market to start. There are now 149 products available on the market, up from 103 in October 2020 and 74 in August 2020. These span 21 lenders, up from 14 last August. Although everyday we hear about Lenders adding the product range to their portfolio. Earlier this month, Interbay Commercial, part of the OSB group announced their support for the sector with rates from 3.84% and LTVs up to 70% and a choice of either a 2- or 5-year fixed rate for loans from £50k to £1m. The Cambridge has also reintroduced holiday let products introducing a 75% LTV 2-year discount product at 3.39% and a 75% LTV 5-year fixed at 4%. Market Harborough are in a similar space as are Yorkshire Building Society.

The complexity arises where the property is exclusively zoned for holiday lets. Most lenders are relying on property being classed as residential and therefore could be let out on standard tenancies. When you get property that is only allowed to be used for holiday lets the rejections start coming in thick and fast. We recently helped a client secure a decision in principle for a portfolio of holiday lets with restrictions and having canvassed over 20 lenders, we ended up with only 2 that were interested. That will be a burden for a lot of people investing in holiday lets and can make the whole application process very frustrating.

So where should you be investing? Data from Hodge Bank shows that the most popular destination for holiday-let buyers was the South West of England, with 39% of customers choosing that location for their investment. Purchases in Wales have increased to 19% from 10% last September and coastline towns around the North of the country having been significantly attractive. Newquay, St Ives and Penzance in Cornwall are also emerging as major hotspots. The least popular regions with only 1% of purchases were Greater London and the East Midlands. With the West Midlands and the South East also only accounting for 2%. It makes sense, after all most people still want their holiday-by-the-sea whether it is in the UK or abroad.

There are also significant tax breaks associated with a Furnished Holiday Let (FHL). To qualify a property has to be let fully furnished on a commercial basis with a view to making a profit (so a good excuse to avoid giving friends and family discounts). It has to be let for at least 210 day a year and let as an FHL for at least 105 days a year. It should not be let by the same person for more than 31 days in a row. I myself have had this experience, as I stayed in holiday lets ahead of moving to a new house and it irked me that every month I had to exit for day and re-enter the following day. Now I understand the reason behind it. FHL owners can deduct the full amount of their finance costs such at mortgage interest from their turnover to calculate taxable rental profits (unlike with residential buy-to-let properties) and profits from an FHL can be apportioned between spouses for tax purposes in reference to the work done. FHL profits also count as relevant earnings for contributing to a personal pension which could help reduce the tax bill. The sale of an FHL business could qualify for Business Assets Disposal Relief giving owners a chance to pay Capital Gains Tax (CGT) at the 10% rate subject to the availability of their £1m allowance.

Naturally you would want to consult with a professional tax advisor before relying on any information as personal circumstances will differ. But overall, the incentives are there to take advantage of this new trend in holidays. It’s also worth bearing in mind that if the properties are exclusively listed for holiday let only, you can apply to have them converted to residential dwellings and this may make sense if you wanted to swap from a holiday let to a traditional let, but do inform your lender if this is something you are thinking of.

If you are thinking of investing in a Holiday Let and need financing, feel free to get in touch with us and we would be happy to explore the options together. But for now, whether you are investing or just looking forward to your next ‘staycation’, I hope the weather is on your side. On this gloriously sunny day I know I’d rather be sipping a drink and listening to the sounds of the waves on a balcony somewhere.

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