Launching a holiday let product just a few months before the world comes to a standstill due to global pandemic, isn’t ideal. The world and the holiday let market has changed a lot since then. Here James Enos, national account manager at Hodge, looks back at how the market has evolved since December 2019 and what he sees for its future.
The holiday let market was primed for a new product when we launched it in December 2019. Unbeknownst to us, the world was about to change as Covid 19 struck and the world shut down, as well as most of the property market in the following few months.
As holidaymakers couldn’t fly, the popularity of the staycation soared, so did the holiday let market. Add to that consumer concerns about the carbon footprint caused by flying, wanting to take their dogs away with them, and looking to avoid the risk of lockdowns abroad and being stranded overseas – the market was buoyant.
More than four years on, there are so many factors impacting lenders and intermediaries in this ever-evolving market. We’ve seen some concern about the increase in second homes in certain areas of the UK and some local authorities are now looking to manage these numbers by doubling council tax on second homes. The Chancellor reacted to this concern in the latest Spring Budget where he abolished business rate relief on furnished lettings for holiday homes, so it will be interesting to see how this tax relief change will reverberate around the holiday let market in the coming months and years.
Those property investors who have identified holiday lets as an alternative to buy to lets due to the attractive yields available may be put off due to this abolition of business rate relief, but then again the flexible criteria available by the increased number of holiday let lenders in the market might sugar this pill.
Increasing costs linked to council tax, the general cost of running second homes and the lack of tax relief might help reduce the concentration of second homes in certain areas of the UK, but we haven’t yet seen an impact in consumer appetite for staycations so it’ll be interesting to see how this develops and affects the holiday let market in the next few years.
With inflation still sitting well above the 2% target and ongoing cost of living pressures, it’s difficult to predict what sort of impact all of these factors will have on the holiday let market. However, from looking at our back book and the profile of holiday let investors today, we would assume any impacts to this cohort of borrowers will be limited.
One thing our data clearly shows is a noticeable change in the types of property we are lending on.
During the pandemic these properties were primarily in coastal and rural areas due to customers wanting to escape the city and the restriction on international travel. In recent years, city breaks have grown in popularity, particularly on properties rented via Airbnb, as the demand for short breaks and weekends away continues to increase.
Looking to the future, it’s hard to predict whether or not the market will continue to grow, but none the less, holiday let has become an integral part of the UK mortgage market. With significant changes in the buy to let sector in recent years, it will be interesting to see if any of these regulatory and tax changes will impact the holiday let space.
A lot has happened in the four years since we sold our first holiday let mortgage – the world has changed; the holiday let market has evolved and the buy to let sector has become more challenging.
All of these factors will hopefully lead to a continued buoyant market and more holidaymakers looking to take advantage of the amazing properties available on our home turf.
James Enos is national account manager at Hodge
This article featured in the March 2024 edition of MS.
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