Holiday lets: where are you able to obtain the best buy-to-let yields?

Holiday lets in the united kingdom are becoming ever more popular, with many areas offering good yields for landlords considering a move from residential buy-to-let.

As with anymore niche investment, however, there are particular rules around taxation – and you might think it is harder to obtain a mortgage.

Here, we take a look at a study that shows areas using the best holiday let yields, and provide suggestions about the financial side of purchasing a holiday home as an investment.


Cheaper areas enjoying bigger yields

According to new research from Second Estates, Wales (11.7%) and Northumberland (11.5%) would be the places that holiday homes enjoyed the best yields in the last Twelve months.

The report implies that as the national average is a touch over 10%, higher yields of 14% might be forthcoming between 2022 and 2022, so there might be great news nearby for long-term investors.

As you may expect, more expensive areas remain popular with renters but offer less bang for buck for investors.

For example, properties in Dorset and the South Coast gain 280 days a year of bookings, but enjoyed the lowest yields from the last 12 months – typically 5.9%.

And while Nature are very popular, they command a 22% premium around the sales price in contrast to other UK holiday lets. The brand new Forest is the most expensive park to buy in, at an average cost of lb525,000.

Holiday lets increasingly popular

Separate research by Mintel published in April found that so-called ‘staycations’ are increasingly desired as the UK undergoes a tourism boom.

Good weather this past year led to domestic holidays increasing by 4.7% to 58.5m, while expenditure soared by 6.2% to reach lb14.1bn.

Can I get a mortgage on a holiday let?

Mortgages can work slightly differently on holiday lets, though some major lenders such as Leeds Building Society provide specific products.

Many lenders steer clear because these properties don’t offer guaranteed income. For example, many holiday lets are only sought after in specific seasons, so rental income can fluctuate significantly.

As the absolute minimum, you’ll require a deposit with a minimum of 25% for any holiday let mortgage, though for a competitive rate, 35% to 40% is a benchmark.

Some homeowners turn to remortgage their current properties and release equity to boost a sizeable deposit for his or her investment property, thus lowering the amount they’ll have to borrow.

Rules around holiday let mortgages

Lenders who do offer specialist products will expect to determine extra proof that you could afford the repayments.

Maximum loans in many cases are lb500,000, and you’ll probably simply be permitted to get one mortgaged holiday let inside your portfolio.

Aside out of this, lenders will request instructions from a local agency detailing weekly letting rates for the property all year round, and will stress test the yearly average.

Your rental income will need to be around 145% of the mortgage payments, tested at an rate of interest of around 5.5%.

Tax relief for holiday homes

Some of the tax and regulatory changes applying to buy-to-let properties don’t apply to furnished holiday lets, meaning it’s possible to enjoy good rental yields.

They can be more costly in certain different ways, though.

If you’re letting a completely furnished holiday home, this will be seen as an business enterprise as opposed to a property investment.

This means you ought to be in a position to claim tax relief against accessories, and offset your mortgage interest costs, tax and bills upon your income.

You will, however, still need to pay the additional 3% stamp duty surcharge when you buy your holiday let should you already own another home.


Rules around holiday lets

For your home that need considering a holiday let for tax purposes, you’ll have to meet some stipulations.

Firstly, the home needs to be available for a minimum of 210 times of the entire year, and has to become occupied by tenants for at least 105 days annually.

You also won’t be able to include any more lets – classified as those over 31 days – during these figures.

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