Holiday Let Ownership – Read Before You Buy 2024/5

Buying a holiday let is a huge commitment not only on your finances but entire lifestyle; you will be responsible for managing your own holiday home, with all of the admin that comes alongside such a task. Before you take on the job, it’s important to really understand the risks and advantages of holiday home ownership, from holiday let mortgages to finding a holiday home for sale. Our guide covers everything you need to know before buying.

The risks of holiday let ownership

We can’t pretend that holiday home ownership is all fun and games! You might have visions of carefree getaways in your very own home from home, or a healthy income thanks to a flow of happy guests and yes, these scenarios are possible. And while there’s no problem with dreaming big, you have to also weigh up the risks before you buy.

Finances

The biggest danger of holiday home ownership is losing your financial investment. From the hefty initial holiday let mortgage deposit, to the price of making your property guest-ready, to the ongoing costs of repairs and replenishments, to the fees of professional holiday agents and cleaners, you’re looking at spending a huge amount of money on your holiday home. Let’s not forget that property prices in popular tourist destinations are significantly higher than those elsewhere, so you might have to pay more for your dream property than you realise.

Of course, these payments can be seen as a business investment with many claimed as business expenses, and will be worth it in the long term, providing that your holiday let is successful. But if things don’t work out as you’d hoped and you don’t generate enough bookings to make a profit, your finances are going to take a big hit.

Seasonal dips

Owning a holiday let can be far more stressful than a buy-to-let because you’re faced with the task of securing guests all year round. The problem is that holiday homes’ popularity will inevitably change with the season and while you might get a high number of bookings during the summer months and national holidays, the downside is a quieter period during off-peak periods. This is a risk you have to face and work around as a holiday home owner, perhaps by upping your marketing or promoting special offers during the less busy months.

Workload

If you’ve never owned a holiday home before, it’s easy to underestimate how much work is involved, especially if you have a high turnaround of guests. It’s not like owning a buy-to-let property when you might not hear from your tenants for months at a time and a deep clean is only needed once or twice a year.

If your holiday home is welcoming numerous guests per week, you’re looking at a lot of maintenance. Professional-level cleaning, changing all of the bed linens and towels, and replacing amenities, for example. Plus, less frequent jobs such as window cleaning and gardening will be your responsibility. It’s a risk to undertake so much work, especially if you already have a job. There is of course the option to get a cleaner or management company to do the hard work for you, but the cost of such must be worked into your budget.

Legalities

You have to be far more careful when there are other people living in your property and there are certain legal obligations which you must abide to. While it might sound a little daunting, you will be responsible for the health and safety of your guests, so you must ensure that your holiday home meets current regulations.

You will need to carry out a safety review of the house and its grounds to highlight any potential hazards; get your boiler and any gas appliances checked and signed off by an engineer; arrange for a fire risk assessment and equip your property with items such as a fire blanket, smoke alarm and carbon monoxide detectors.

Plus, standard home insurance isn’t accepted for holiday homes. Instead, you must insure your property with an appropriate level of public liability insurance, normally at least two million pounds.

The guests

As you’re welcoming new groups of guests all the time, there’s an increased risk that some will be difficult or cause problems. While you can stipulate rules to an extent (no pets, no hen parties or stag dos, for example), you can’t completely vet every single guest. So yes, along the course of the year, you might get careless people who stain your furniture or break things without telling you, but this is something that you’ll have to face.

The benefits of holiday home ownership

Onto the positives of holiday home ownership – of which there are many!

A thriving industry

If you’ve been waiting for a good time to buy a holiday home, you’ll be pleased to know that it’s now! The holiday letting market is prosperous and UK holidays have never been more popular. Even before the pandemic made foreign travel more of a hassle, more and more people were discovering the joys of a staycation. With more holiday homes popping up around the country, there’s something for everyone and every budget; couples seeking luxury in the country, families looking for fun on the beach, and groups of friends wanting a city escape – there’s accommodation out there.

Potential for profit

As we’ve discussed, there will always be risks when entering into a new business and holiday letting is no different. But, if you put a proper business plan into place and manage your holiday home to a high standard, there’s a great chance you’ll reap financial rewards.

As holiday homes welcome short-term guests who are willing to pay a premium, holiday let owners can earn much more per month than buy-to-let owners, especially during peak seasons, national holidays or if there are local events happening.

Help on hand

We touched upon the amount of work involved in holiday home ownership and while this subject can’t be avoided, it’s good to know that there’s plenty of professional help out there. What with the market being so popular, there’s a huge amount of holiday letting agencies waiting to help you with management, marketing, and customer service. This comes with a fee, of course, but the service and exposure you receive should be more than worth it.

So, if you’re business-minded but aren’t keen on dealing with frequent guest requests, sorting out complicated booking calendars or doing regular housekeeping, there’s no need to worry – you can appoint a professional! There’s plenty of options depending on how involved you want to be; some holiday let owners want to sit back once the initial hard work is done, while others enjoy certain aspects of the job. It’s up to you how much you offload, whether that’s letting the agent take care of everything on your behalf or getting just a housekeeping or marketing team for more focused tasks.

Tax benefits

There are various tax benefits you can take advantage of when you own a holiday home, including ways to legitimately cut your income tax. With a holiday let mortgage, from April 2025 you can no longer offset your mortgage interest against your profits and nor can you claim capital allowances for furniture, fittings and so on, and deduct the amount from your profits. If you run your holiday let as a husband-wife team, you can split the profits as you wish – although we wait to see what the government do about this rule!

Other tax benefits include a reduction on or complete exemption from paying council tax as you switch to Business Rates. Note: Capital Gain tax rules will change in April 2025 in line with the Abolishment of the Furnished Holiday Let rules.

Personal use

While there are limits on personal use, one of the main advantages of holiday home ownership is having your very own vacation spot. It couldn’t be more convenient or cheaper to plan a getaway at your own property. Plus, as you’re the one who’s decorated and furnished the house, it’s likely to be finished exactly to your tastes!

Things to consider when purchasing a holiday let

It’s essential to weigh up the pros and cons we’ve discussed before you purchase a holiday home. Once you’ve done this, if you’re still interested in holiday home ownership, it’s time to put a business plan into place. This plan should focus primarily on how you will maximise your profits through bookings and secondly, how you will provide excellent service to ensure repeat custom and good reviews. Your business model should consider…

• Marketing. It’s highly advisable to work with a professional on your marketing, in order to get the maximum possible reach. Building your own website won’t have the desired effect as you’re unlikely to appear on a Google search. Professional photography is key to create the best possible image of your holiday home, while a social media presence is also essential in the current climate.
• Pricing. You need to work out what’s a reasonable charge for guests – too high and you won’t get enough bookings, too low and you might secure more bookings, but won’t make much money. Again, a professional agent will have extensive knowledge and can advise you on this subject. Security and damage deposits should also be considered; charging extra (even though most people are likely to get the money back) can be off-putting for some but will protect you in the case of unruly guests.
• Management. You’ll have to plan what areas you want to be involved in, and be realistic about this, especially if you have another job. Organising guests’ stays is a hefty job in itself and it’s likely that you’ll encounter last minute bookings and cancellations which can cause complicated logistics and the need for quick turnarounds. Plus, there’s the double-booking issue; you will need a sophisticated booking system to avoid the possibility of two guests booking the same slot – this is something that a holiday letting agent will take care of for you. Good management also entails excellent housekeeping: a professional clean, replenishment of supplies and inventory check between each guest.
• Customer service. With a saturated market and high expectations, you need to work out how to wow your guests. A nice house isn’t enough to get those good reviews and repeat bookings, you need to provide a memorable experience – a bespoke welcome hamper and personalised guest book will go a long way towards making your guests happy. Plus, you need someone available to answer queries and solve problems at the drop of a hat, whether that’s a broken boiler at midnight or faulty internet.

Getting a holiday let mortgage

Getting a mortgage for a holiday home isn’t as straightforward as you might expect and if you’re hoping to secure one, it is vital to understand how the process works.

A holiday home mortgage is different than a regular residential or a buy-to-let mortgage – to use either of these for your holiday let property would be to breach your mortgage agreement. Instead, you have to apply specifically for a holiday let mortgage.

Unfortunately, holiday let mortgages are a specialist area of finance and you can’t just phone up your bank and say, “I want a holiday let mortgage.” Most of the lenders are building societies and will have specific criteria which you will have to meet, a number of which are stricter than other types of mortgages.

Holiday let mortgage criteria

While the criteria will vary from lender to lender, typical requirements include…

• A minimum income requirement. This could be anything from £20,000 and upwards, depending on the number of applicants and loan size.
• A minimum rental figure. Lenders will generally expect a gross rental income that is 145% of the mortgage payments. They will require proof of the estimated rental income to ensure that the mortgage payments can be met, and this must be provided by a reputable holiday letting agent who can provide a realistic rental projection.
• A rule that all applicants must be over the age of 21 and already own their own property.
• Stipulation that applicants must have UK citizenship with at least three years’ address history, as well as an excellent credit history.

Can I get a holiday let mortgage by myself?

It is possible to find a mortgage lender and apply directly to them, but this is likely to be a lengthy process with hurdles along the way. The first problem is that most holiday let mortgage providers don’t actively promote their services and so it’s difficult to even find a potential lender.

Even if you think you’ve found an ideal lender, the application process is far more complex than regular mortgages. For this reason, if you run into difficulties along the way, your entire claim could fall through, and you’ll have wasted your time. If you’ve gone with a mortgage broker instead, they will be able to liaise with the lender on your behalf – from finding the lender that is best suited to you, to providing the necessary paperwork. And if things fall through, they will have all of your information on hand to start again, so you don’t have to!

Finding the right property

You might think you’ve found the perfect home, but that’s for mortgage lenders to decide! They will be looking for different things than you and won’t accept your holiday let mortgage application if they decide that the property poses a risk to their loan in any way. Lenders will want to know…

• If there are any restrictions on holiday letting in the area, as is the case with St Ives in Cornwall.
• If there are any factors that will limit the property’s use as a residential home.
• If the property is of sound construction. In other words, how you’d imagine a typical house – no timber lodges or shepherd huts.
• If there are commercial operations close by, such as a pub, factory, or industrial centre. Such buildings could cause noise and inconvenience for guests, affecting the popularity of your holiday home and as a result, your rental income.

Finding holiday lets for sale

So, you’ve decided that holiday home ownership is for you – the question is, how do you find a holiday home for sale?

The first option is to purchase a property that’s already being run as a holiday let. This could be your preference should you want to hit the ground running and buy a place that is already tailored for guests. An online search for ‘holiday homes for sale’ will give you plenty of results which generally fall into two categories:

1. High-End Holiday parks advertising holiday lets for sale. There are various high-end holiday resorts across the UK such as Lower Mill Estate and Silverlake.
2. Holiday letting agencies advertising holiday lets for sale. Companies such as Travel Chapter have a section on their website which lists properties for sale; holiday homes which have been previously marketed with the agent in question and are now being sold by the owner.

The second option is to purchase a regular property and to convert it into a holiday let. This gives you a much wider berth as far as your initial search goes; you can house hunt as you would for a regular residential home, which will inevitably generate far more results. This is where you have to be careful about finding the ‘right’ property, though. You might find a number of ‘perfect’ places on Rightmove, only to find out that they’re not going to work as a holiday let. This could be for various reasons, whether that be restrictions on holiday letting in the area, or because there are red flags that mortgage lenders won’t approve, as we’ve discussed above.

How to sell a holiday let

It’s not something that’s likely to be on your mind before you even purchase a property, but it’s good to do some research into selling holiday lets. As with buying a holiday let property, there are two routes you can take when selling one.

The first is to sell your property as a holiday let, which could be the easier option if you own a house which you have deliberately set up and designed to be a holiday home, rather than a residential home, or if it is located in an area that’s incredibly touristy. If you go with this option, you’ll find that there are specialist estate agencies with the necessary marketing expertise, who can help you to sell your holiday let. Such agents can take on the task of valuating your holiday let, as well as promoting the sale on external platforms such as Rightmove.

Alternatively, you might want to sell your holiday let as you would a residential property. In this case, you’ll want to find an estate agent whose catalogue complements your house and who will market it suitably. For example, if you own a boutique country cottage, you’ll want to work with a luxury estate agent who specialises in countryside properties and will showcase it in its best light. On the other hand, if you own an old-fashioned bungalow that’s pretty but modest, you’ll need to find an agent whose listings aren’t quite as ‘flashy’.

What next?

If you’re still interested and looking for more information about buying a holiday let property, you’re in good hands. HCM has expert understanding of the holiday letting market, and those mortgage providers who are willing to lend to holiday lets. For more information contact us or complete the following form for a free initial assessment.