In recent years the UK tourism industry has seen a resurgence with staycations and UK holidays becoming the only feasible option for some families looking to have a break. With Covid restrictions on international travel, along with rising travel costs and more people becoming aware of their environmental impact, domestic holidays boomed. Add to this the fact that the UK has a wide range of stunning holiday destinations and it’s clear to see why staycations have become so popular.
A recent piece of research from Suffolk Building Society found that 17% of UK adults considered purchasing a holiday let property during the pandemic. This is a trend that is surprisingly being led by the younger generations, with those between 20-39 years old the most likely to consider buying a holiday let over the past two years. That being said, it’s important to differentiate those who are considering buying a holiday let, with those who are in the position to do so; likely the older generation. There are various factors that limit an individual’s ability to purchase a holiday let property, the most obvious being having the disposable income available. However, it’s relatively common for lenders to impose a minimum age limit when applying for a holiday let mortgage, and in some cases, the individual must already be a homeowner or landlord.
When looking for where to purchase a holiday let property, it was clear that most potential landlords are looking to escape city life. London (24%) and the West Midlands (19%) led the way for the top locations with the most would be landlords, while coastal escapes such as Devon and Cornwall led the way for the dream locations of these prospective landlords.
Furthermore, when exploring the key considerations prospective landlords make when choosing a holiday let, property location came out on top. Some of the other key considerations include the property’s renovation potential, the level of upkeep required, and the property’s proximity to local amenities.
The events of the past couple of years have made it clear why the idea of owning a holiday property in the UK has become so popular. However, before taking the first steps, there are some key considerations that landlords need to make. The most obvious, and most important, consideration is to ensure that everything adds up financially, especially if you are taking out a mortgage to purchase the property. Furthermore, it can be helpful to understand the specific criteria that individual mortgage lenders are looking for as this can vary from lender to lender, and is very different from a standard residential mortgage.
To help potential landlords weigh up the options, and decide whether a holiday let property is right for them, here are our top tips for taking out a holiday let mortgage:
- A common requirement of lenders is to require landlords to either have a mortgage, own their residential property, own a buy to let property, or a combination of the three.
- First time landlords may find that certain lenders will impose an age restriction, even if their finances are in order and they are a residential homeowner.
- For holiday let properties, affordability assessments are typically carried out on the property’s rental potential as opposed to personal income and outgoing. That being said some lenders will still want an overview of the applicant’s financial position.
- Applicants should expect to be able to demonstrate a minimum income. This can be from a combination of employment, self employment, investments, pensions etc.
- Some lenders will require evidence of achievable income from a third party, such as a verified letting agent. This evidence should display the achievable rental income at varying times throughout the year.
- Many mortgage lenders will also want to assess the property, as a result, properties in holiday parks, caravans, lodges, or those on an unusual construction method may not be accepted by all lenders.
- Short term lettings sites such as Airbnb and Vrbo are not allowed by all mortgage lenders, therefore landlords shouldn’t assume they can market their property on these sites.
- There is an acceptable level of personal use allowed throughout the year, however, this can vary depending on each lender.
- Certain lenders will enforce restrictions on the number of holiday let and/or buy to let properties that a landlord owns. This is extremely important for landlords will multiple properties to be aware of.
- Specialist holiday letting insurance should be a top priority and needs to be arranged with public liability cover (typically a minimum of £1m) included.
Holiday let mortgage applications are very different from a traditional residential or buy to let property, therefore, they are typically more complex. As a result, it’s always recommended that prospective landlords seek guidance from an independent mortgage adviser to help increase their chance of success. Furthermore, mortgage advisers will have a much better understanding of the various criteria that mortgage lenders request, helping to match landlords with the product that best suits their needs.
Joanne Leek is Marketing Manager, Mortgages, at Suffolk Building Society. Suffolk Building Society, which changed its name from Ipswich Building Society in 2021, is a national mortgage lender and operates a manual underwriting approach, so applications are reviewed by an individual, not a computer.