In the past three months searches for “holiday homes for sale” have grown 73% year-on-year. The coronavirus pandemic and related restrictions on travel are driving a surge in demand for UK holidays – and property investors are keen to tap into this. As more people consider investing in a holiday home, mortgages for holiday let properties are also in higher demand and holiday let mortgage brokers are having one of their busiest years yet.

Holiday let mortgages in the UK are especially appealing because the prices of holiday lets here have risen dramatically. Last month a snapshot by consumer association Which? indicated that some accommodation prices have risen by an average of 35 per cent compared with last summer – and the gap is expected to widen as summer 2021 approaches.

To come up with its findings, Which? tracked the 2021 prices of 15 holiday lets in the top 10 most visited UK seaside destinations. It found that in every case, prices have increased from last summer.

The study examined prices in destinations as diverse as St Ives, Whitby, Llandudno and Brighton. It found the largest markup of properties was for a one-bedroom maisonette in Brighton on Airbnb. When Which? checked the price of the listing in May 2020 for the first week of August 2020, the cost was £53 per night. But when it checked again in February 2021 for the same period the property was £127 per night – an increase of 140 per cent.

Which? also found a 70% increase in the price for a one-bedroom property in the centre of Eastbourne on Airbnb. Last year, a one-week holiday there in the first week of August cost £409. This year, the same week costs £696.

On Vrbo, a one-bedroom property in Bournemouth rose from £722 for the first week of August last year to £958 this year – an increase of 33 per cent.

Other price rises were more modest. A one-bedroom cottage on Airbnb in Scarborough increased by seven per cent for similar August dates this year, while a one-bedroom property on Vrbo in Swanage with views over the Purbeck Hills had gone up by just two per cent.

With self-contained holiday accommodation breaks now on the cards again and restrictions expected to loosen further as the summer approaches, it’s likely that demand for UK holidays will increase even more over the coming months. With rules around foreign travel still uncertain, there is less risk involved in taking a UK holiday. Coronavirus restrictions, such as testing and hotel quarantine for UK arrivals, make foreign holidays a worry for many. But plenty of people still want to head for the beach. As Rory Boland, Editor of Which? Travel, said: “Many holidaymakers are looking forward to finally going to the seaside this summer, so it’s perhaps not a surprise that high demand has seen prices for some destinations shoot up too.”

All of this is borne out by statistics reported by holiday let company Sykes Holiday Cottages, which said in February that searches on their website for UK holidays in July and August were up 129% year-on-year, exceeding pre-pandemic levels in February 2020.

Sykes also reported that bookings for the summer period made at the start of February were up 126% year on year.

In particular, Devon, Cornwall and Cumbria were proving popular. These locations had the greatest growth in bookings for summer 2021.

Sykes Holiday Cottages said the figures show that customers are feeling positive and looking towards a summer that gives them something good to focus on and look forward to. It added that this is welcome news for local businesses and property owners across the UK.

Graham Donoghue, CEO at Sykes Holiday Cottages, said: “We’ve seen a significant increase in bookings for later this year, showing that confidence is returning and just how eager we all are to take a much-needed break away this year.

“With millions more Brits now choosing to forgo foreign holidays in favour of UK breaks, not only is it a huge boost for the UK economy, but it is also adding to the attractiveness of holiday letting as an investment opportunity.

“We’ve witnessed a strong pipeline of enquiries in recent months from those who are new to holiday letting or wanting to rent out their second home to make the most of this staycation boom in Britain. Offering an average income of £21,000 per year, the revenue opportunities in the years ahead could be substantial.”

With this in mind, it’s understandable that the appetite for investing in holiday let properties is increasing and mortgage applications are on the rise, with online searches such as “holiday let mortgages 75 LTV” (for 75% loan to value mortgages) on the increase. But this type of borrowing does come with risks. What should you consider before taking the plunge? Here are our tips.

Examine your current mortgage situation

Do you already have a mortgage? If so, this could make it more difficult to get a mortgage on a holiday home. If you are able to get a second mortgage, your existing mortgage will have an impact on the amount of money you’re allowed to borrow. Talk to your bank, building society and/or mortgage broker and find out what the options are for you. It’s important to establish at the outset whether you meet the holiday let mortgage criteria.

Take a good look at your current financial situation

Your current financial situation will significantly affect your mortgage application, particularly if you already have a mortgage. Your potential lender will have strict lending criteria when deciding whether you can afford a mortgage for holiday rental. They will examine your personal income and monthly outgoings to establish whether you can really afford a new mortgage. The good news is that they will also take into account the potential rental income from the property. However, they will want to be sure you can afford to pay the mortgage if the property is empty. Your credit rating is also key. Among other things, this will be affected by whether you have met payments on previous loans. If you’ve defaulted, this will give you a poor credit rating. Even if you have a great credit rating, you need to take a long hard look at whether you are willing and able to commit to a mortgage for a holiday let business. Check out holiday let mortgage rates and consider interest rates and how these will impact mortgage interest. Also bear in mind that rental properties can have high upkeep costs – especially holiday lets with a swift turnaround of tenants. Will you be able to foot the bill?

Be clear whether you want a holiday let or a second home

A holiday let is a property you buy with the intention of making money by letting it out, but a second home is a home you buy mainly for the use of you and your family. Depending on which you want, the type of mortgage you need will differ. If you are considering buying the property for personal use, you’ll need to examine second home mortgage options. If you want to make money by renting the property out to holidaymakers, you’ll need to look at holiday let mortgages. A third option is that you might want to let the house to tenants as a long-term home rather than a short holiday let. These types of properties are described as buy to let properties rather than holiday lets. If this is what you have in mind, you’ll need to look at buy-to-let mortgages. Many people think that you can get a standard buy to let mortgage for a holiday let, but this is not typically the case; while both can be effective investment mortgages, a holiday let mortgage – also sometimes called a buy-to-let mortgage for holiday rental – is a special and separate type of buy-to-let mortgage. You can also explore the possibility of a commercial mortgage for a holiday let.

Get good advice.

When seeking financial advice, look for an advisor who is registered with the financial services register, which will indicate that they are regulated by the financial conduct authority (FCA). Also, do your research and speak to a mortgage broker so that you’re able to find best holiday let mortgages available. You need to ensure you go about the process in the best way for your finances and business plans – and beware of popular misconceptions. For example, after the government stopped landlords being able to offset the full mortgage interest against the profit from a buy-to-let property, many people started to think it was wisest to get a holiday let mortgage through a limited company so that they would still be able to offset their mortgage interest. However, because a furnished holiday let is considered by HMRC to be a business, this step is not necessarily needed. Get good advice and your holiday let is more likely to be a successful investment.

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