Any brokers who work with buy-to-let property investors will likely have seen increased interest in the holiday let market recently.
The last two years have understandably been particularly strong for the domestic holiday market, opening the eyes of investors to the potential benefits offered by adding this form of property to their portfolio.
This increased interest has led to a striking jump in the number of holiday let mortgages available. As brokers will have noticed, the number of mortgages available for their clients has trebled over the last couple of years.
This wider range of choice for brokers getting involved in the holiday let market is obviously a huge positive.
However, it remains the case that there are certain areas of the holiday let market which remain noticeably underserved by lenders.
Limited companies and expats
The first are those holiday let landlords who wish to own property through a limited company, rather than in their own name.
Brokers will know only too well that limited company buy to let has been a big growth area in recent years, and with good reason.
Landlords of all kinds are attracted to the potential to reduce their tax burden which can come from holding an investment property in a limited company. Paying corporation tax rather than income tax on the rental income is an appealing proposition, as is the ability to deduct certain costs, like mortgage interest.
However, investing in a holiday let through a limited company can be challenging. For some lenders, it’s simply not possible – the very suggestion of doing so is out of the question. For others, purchasing through a limited company means opening yourself up to higher interest rates than purchasing a holiday let as an individual.
And then there are expats. The holiday let market is attractive to all property investors with an eye on British property, even if they are based elsewhere. We know that there are plenty of expats who are keen to enjoy the returns that come from backing property in this country, even if they have now emigrated somewhere else.
Again, this can prove an insurmountable issue for some lenders. The fact that the investor is based abroad means they will not even consider the application, no matter how strong the business plan, how perfect a prospect the holiday let may be.
This tickbox approach doesn’t sit well with us at Mansfield Building Society; it’s not how we work. We have built our reputation on embracing a more personal way of appraising cases, tasking our underwriting team with really getting to grips with the intricacies of each application. By viewing the borrower as an individual, and understanding their circumstances, we are in a much better and more informed position from which to make a decision.
It’s because of this approach that limited company borrowers face no additional hurdles when looking for a holiday let mortgage with Mansfield Building Society, and why our range is also open to expat borrowers. We want to base our lending decisions on the details of each case, rather than impose unnecessary restrictions and hurdles.
An opportunity for brokers
It would be easy to dismiss the holiday let boom as the product of the pandemic, but that would be a short-sighted mistake.
Even before Covid, increasing numbers of property investors were diversifying their portfolios, keen to add the increased cashflow that comes from a quality holiday let to their existing investments which perhaps are good prospects for capital growth, but offer little in the way of an income.
Whilst there may be a return to overseas holidays as the pandemic restrictions fall, we expect the UK holiday market to remain strong as Britain also begins to accept overseas vistors and Brits seek a cost-effective domestic holiday as a secondary break or as an alternative due to inflationary pressures.
Holiday lets remain distinct from the traditional buy to let market and it’s crucial for brokers to not only understand these differences, but also to identify lenders who employ a more personal approach and so may be able to provide more flexibility for their clients.
Tom Denman-Molloy is intermediary sales manager at Mansfield Building Society
