Investors warned that a holiday let is a 'completely different animal to a BTL'



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Bridging & Commercial and Castle Trust Bank recently hosted a virtual roundtable about the holiday let market — a sector full of opportunity for professional investors and first-time landlords alike.

The live discussion, entitled ‘Maximising investor opportunities for holiday lets from the boom in staycations — and avoiding the pitfalls’, was held on 30th March and moderated by Caron Schreuder, managing director at Medianett, who was joined by Scott Apps, business development manager, and Rob Oliver, director of sales, both of Castle Trust Bank. 

Also present were broker panellists Anthony Rose, director at LDNfinance; Jason Berry, sales director at Crystal Specialist Finance; Phil Gray, managing director at Watts Commercial and Dak Lam, senior associate at Sirius Property Finance.

Castle Trust Bank, a specialist lender in the BTL market (which was granted its banking licence in June 2020), has experienced a “huge spike” in holiday let activity in the last few months.

Rob attributes this to a combination of current travel restrictions and the door now being “firmly open” for professional investors wishing to expand their portfolios, and first-time landlords seeking yield in this sector. 

“Lots of banks are now looking to get into the space, however, Castle Trust has been an expert in it for a number of years and we understand the market and how it’s evolving,” he stated.

Rather than from professional investors, Jason reported that Crystal was witnessing an increase in holiday let enquiries via consumers with spare cash who are looking for a “weekend retreat”.   

The rise in flexibility in terms of where we are based on a day-to-day basis means that more people are considering investing in holiday homes in which they can stay on occasion, according to Anthony.

As LDNfinance deals predominantly with London-based clients, the hotspots it has seen emerging include the whole of the south coast down to Devon & Cornwall, and up to Norfolk. 

As a holiday let owner himself, Phil was keen to point out that a distinction needed to be made between those buying second homes to rent out to offset some of the costs, and people who are making the purchase as an actual investment. 

“They are a completely different animal to a BTL,”  he said, explaining that the running costs of a holiday let are myriad and can be high, and that there are council tax and business rate considerations to take into account, depending on how the property is classified. 

“Investors have got to be very careful that they understand what they are getting into,” he warned, stating that they should not just be looking at the headline rate of income. 

He went on to assert that he handles holiday lets as profit and loss lends, whereas a BTL is an AST lend.   

Scott commented that brokers can add a lot of value to this part of the market through education, especially when it comes to tax implications. “It can be a minefield for someone who has not done their due diligence.”   

Dak concurred, advising that, before falling in love with a property, one should seek advice from an accountant about whether to purchase in a personal or company name, and what the regulatory restrictions are for the intended product and lender.

When asked about the current landscape for financial products of this nature and lender appetite, Anthony revealed that there is still room for innovation.

“From a consumer demand perspective, we have seen a demand for the ability to take a relatively highly leveraged product and be able to stay there themselves and let it out,” he remarked , detailing that there is an opportunity for funders to develop more hybrid usage products that could fulfil this need. 

He warned that it was somewhat of a grey area and one that could pose a danger for consumers taking out the wrong mortgage product, resulting in them either falling foul of the mortgage terms (by staying there when they shouldn’t, for example) or not fitting the risk profile of the lender in question. 

Acknowledging that criteria and pricing are more competitive than it has ever been, Jason suggested that professional investors could be further encouraged into this market if providers offered more products that allowed flexible conversions.   

Based on holidaymakers’ changing requirements, Scott shared that the rise in the popularity of self-catering (which eliminates the aspect of sharing with other groups and families), and landlords seeking to have properties that are ‘best in class’, was driving the refurbishment market — which is where the bank’s bridge-to-let product has come in handy.   

Rob maintained that a rolled-up bridging loan allows less experienced investors to get their business up and running in a sustainable way, perhaps while converting the property, rather than jumping straight onto a term facility without the income required to service it.   

“We’re seeing people take out a bridge, [for, say, six to nine months], just while they run their business and get in the black from a P&L perspective . . . then, at the point when they have reasonable capital reserves, they’re flipping it over to a term product.”   

Castle Trust Bank looks for sustainability and plausibility in all applications. For first-time investors, a good management company is essential (considering the distance that may exist between the landlord and the property), as is a demonstrable track record of bookings for that particular area and/or type of holiday home.   

“They’ve got to understand the costs — not just of the mortgage, but all the associated costs,” Rob added. 

While it has been described as a “buoyant year”  for holiday let investment, there is a risk of this petering out as and when travel restrictions start to lift.

However, Scott references three reasons why he believes it has sustained staying power: This period of time has seen a vast improvement in the product, the ‘basket spend’ has risen (ie people are willing to spend more on holidaying in the UK), and the ongoing uncertainty about overseas travel.

He concluded that staycations represent a relative ease of travel for families, and this will remain attractive for some time.

The full roundtable recording can be viewed below.

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