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Investing in holiday lets: The pros and cons

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21/05/2021
Renting out a property as a holiday let can be lucrative but there are potential drawbacks to consider
Investing in holiday lets: The pros and cons

Demand for UK holidays has soared while restrictions around international travel remain uncertain, said specialist lender Together.

And this has boosted the UK’s holiday let market, as investors look for the better returns that are often available on short-terms lets.

Chris Baguley, commercial managing director at Together, said: “Even before the pandemic, we were seeing dramatic changes across the buy-to-let landscape with holiday lets steadily increasing in appeal – more so than for traditional buy-to-let properties – as they allow people to tap into the UK’s many tourism opportunities.”

Lenders have responded with more mortgages for those wanting to buy a holiday let, with mortgage options for borrowers rising to almost 150 in March, according to Moneyfacts.

But if you are thinking of investing in a holiday let it’s important you are aware of the benefits and the drawbacks.

Together has published some of the key pros and cons to understand before buying a holiday home to let out:

Higher rental yields
For landlords, holiday lets had already begun to grow in popularity well before Coronavirus, mainly due to the significant tax advantages as they are classed by HMRC as a business (rather than an investment). Combined with the potential for bigger profit margins and a much higher return per-night, now could be a great time to invest in a furnished holiday cottage and rent it out to paying customers on short-term lets.

Technology does the heavy-lifting
With so much demand for UK destinations this year, landlords can relax knowing that the process of letting your property has become much simpler to manage online. With the likes of Airbnb and other options helping you get your property listed, you can get yourself set up and ready to welcome your guests with minimal hassle.

Getting a mortgage
For those considering a second home, there may some hurdles to overcome if trying to obtain a mortgage via traditional banks or high street lenders, due to the increasingly tough affordability criteria.

For example, lenders will first need to see strong evidence that you will be able to keep up with the mortgage repayments on your second home – especially if you have a mortgage for your current property. Lenders could also refuse an application depending on the location of your holiday home – especially if you’re buying a place in an area that has risk of flooding – like in the Lake District.

Costs involved
Unlike standard buy-to-lets, holiday lets have to be managed for regular visitors and therefore, there may be higher costs, such as paying for a weekly cleaner or managing agents’ fees, so these are things that consumers should consider before making any rushed decisions.

Prepare for breakages
When you open your home to paying guests you’ll need to be prepared for potential damages and repairs being needed more regularly – especially after weeks of wear and tear following the summer holiday season.

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