Finding Financial Solutions for Holiday Let Investments

Posted by Market Financial Solutions on 16th February 2022 -

Holiday lets have become increasingly popular among property investors over the course of the pandemic. This has led to a greater interest in large loans as a financial solution for those looking to purchase, refurbish, and renovate a property into holiday lets.

Here, we’ll explore why the holiday let market is booming. We’ll also delve into the key areas investors should consider when using bridging loans to purchase a holiday let investment.

Demand for holiday lets

The UK’s domestic tourism industry has experienced an uptick in activity since the start of the pandemic. Although it was already in a position of strength before Covid-19 reared its head. Rewind to 2019. Around 123 million Britons took domestic holidays that year. That was much higher than the 93 million who took overseas trips.

Source: World Tourism Organisation

Lockdowns damaged the industry in 2020, showing a 60% reduction in domestic holidays that year. However, as rules relaxed within the UK, the market began to thrive once again, whilst international travel restrictions remained in place. Last year, it’s estimated that £56.2 billion was spent by domestic tourists in Britain – that’s an increase of 65%, year-on-year.

Source: Visit Britain

Estimates suggest that an average holiday-let property earns 30% more yield than a traditional buy-to-let. Of course, it is important to remember that these property types will often sit empty for long periods. In fact, they’re typically occupied for only around 24 weeks of the year. Hence, on average, holiday-let investments offer an 8% annual return.

The competitive returns on offer, coupled with the buoyant state of the UK’s tourism industry and the prospect of more overseas visitors to Britain’s shores are combining to create higher demand for holiday let investments.

Source: Mortgage Introducer

Financial solutions for holiday-let investments

As the market sparks back to life, interest from investors will naturally rise. Indeed, at MFS we have seen a higher number of enquiries from property buyers seeking financial solutions for holiday-let investments. But property investors considering holiday lets must think carefully about potential financial solutions. Many buy-to-let mortgages will likely be out of reach for a property’s utilised as holiday homes for hire.

Our buy-to-let mortgage product does provide finance for holiday or short-term let assets, due to its bespoke approach to lending. You can find out more in our buy-to-let product guide.

A bridging loan on the other hand, could also prove a viable financial solution – if only to support the initial purchase. They provide the breathing space for property investors to arrange a longer-term financial solution, without the worry of missing out on an investment opportunity.

But what should investors look out for?

1)      Location

Investors will often be looking for holiday-lets in rural areas. From the coastline of Cornwall to the plains of the New Forest and hills of the Lake District, a great location is essential if a holiday let is going to prove popular.

2)      Lender experience

As such, it is important that investors work with lenders that have experience in working on cases in rural areas, or specific parts of the country. This tends to come to the fore when it comes to valuing the property and underwriting the deal.

We have a seasoned panel of valuers, which allows us to confidently cover properties of all types, sizes, and locations. This is essential when supporting holiday let investors. Find out more information regarding who we lend too here

Property refurbishment and large loans

Using bridging loans for property refurbishment is also common within the holiday let market. After all, the décor and facilities must be first class to attract holidaymakers. Investors will often want to add specialist features or a touch of luxury to the property, which may result in additional refurbishment works. Again, we can provide bridging loans for light refurbishments, allowing the owner to make their holiday let sparkle.

We also see a higher demand for large loans among holiday let buyers. The reason?

Investors will purchase a large property, such as a country estate, with the intent to converting them into several holiday lets. Combined, the acquisition and conversion could run into the millions.

Have a look at this case study, for example: Large loan to cover an impressive country manor and surrounding properties

Investors might find a lender, like MFS, that is comfortable with such cases. From the size of the loan to the nature of the property and its use, it takes a specialist lender to work on holiday let investments. For more information about how we can support property investors considering a holiday let investment, get in touch with our friendly team of experts.