There have been a lot of regulatory changes in the buy-to-let (BTL) mortgage market over the last few years, forcing landlords and property investors to seek out ways to diversify portfolios and increase yields.
The removal of mortgage interest tax relief, Energy Performance Certificate (EPC) requirements and the new Renters’ Rights Reform Bill, combined with the higher interest rate environment, have hit profit margins hard. This is particularly true for those small-scale property investors and individual landlords who have one or two properties to their name.
On the back of these changing market dynamics, Darlington Building Society has seen a notable shift towards holiday let mortgages as investors seek out potentially higher yields in the short-term rental sector.
This area of the mortgage market has grown in recent years, with a number of new entrants and increased competition leading to a surge in the number of mortgage deals available in the market.
In fact, the domestic holiday let market has been in high demand since the Covid pandemic, with a growing number of people realising the ease and flexibility of opting for a staycation at home rather than travelling abroad.
Research from Mintel shows the number of people in the UK choosing to stay in holiday lets reached its highest level in 2024, with spending estimated to have reached £3bn over the course of the year.
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In addition, the number of overseas visitors to the UK also rose to 38 million in 2023, up from 31.2 million the year before, according to the Office for National Statistics (ONS). Almost half (42%) of these visits were for holidays, which clearly demonstrates the ongoing demand for different types of holiday accommodation in the UK.
While the holiday let sector is also set to experience some changes this year, it still remains an attractive proposition for many investors, including expats living overseas. This is especially true in tourist hotspots such as the Lake District and the Cotswolds, coastal regions such as Devon and Cornwall and historic cities such as Cambridge, Bath and York.
Online platforms like Airbnb have made it easier for investors to access this market by offering a streamlined and efficient way to promote and manage short-term properties. It can also be a useful tool for landlords to block off personal visits to the property, as some holiday let mortgages will allow up to 90 days for personal use.
Brokers need to connect with lenders with holiday let knowledge
For brokers with clients looking to purchase or invest in a holiday let property, connecting with a lender who understands this niche area of the mortgage market is crucial. Unlike a standard residential mortgage, holiday let mortgages have been specifically designed to address the finer details of owning a holiday home.
This means that those looking to rent out a second property to guests for a short period of time will need the help of brokers to ensure they are taking out the right mortgage for their needs, as lending criteria for holiday let mortgages can vary widely across the market.
At Darlington, for example, our holiday let mortgages are available to all applicants looking to rent out a short-let holiday home, including first-time buyers, small-scale landlords and expats with fewer than three properties. Airbnb properties are also accepted as standard and there is no minimum income requirement.
When calculating risk and affordability, most holiday let mortgage lenders factor in the projected rental income and the investor’s overall financial profile. These should be key considerations for brokers when discussing their clients’ application with the lender, as it will help them to determine the borrower’s suitability regarding the product.
Despite challenges in the wider economy, the mortgage industry remains optimistic that demand for holiday let mortgages is likely to continue as we head further into 2025. Working with lenders that understand the intricacies of this niche area of the mortgage market will enable brokers to ensure they meet the needs of those clients looking to invest in a holiday let property and capitalise on the growing demand for short-term rentals.
