The broker’s guide to bridging for holiday lets
By Steve Smith -
Short-term finance could help landlords take advantage of the growing holiday-let market, says Steve Smith, national sales manager at Roma Finance.
The popularity of renting out holiday lets has exploded in the last 10 years, fuelled by the introduction of online marketplaces, such as Airbnb, connecting landlords to holidaymakers and making it easy to manage bookings.
The sector has been boosted further by restrictions on foreign travel proving a catalyst for the UK holiday market.
In response to the surge in demand for UK holiday lets and serviced accommodation, buy-to-let landlords have turned their attention to this sector and its attractive yields. By renting properties to holiday makers instead of long-term tenants some landlords in tourist areas can charge over £1,000 a week during school holidays.
Alongside this potential for high rental income, furnished holiday lets have another advantage. They are treated as businesses not investments by the taxman, which means landlords can claim their finance costs and the costs of furnishing the property as business expenses.
But, of course, short-term lettings come with their own risks and responsibilities.
Business is seasonal, and maintenance of a holiday let or serviced accommodation is higher than a standard rental, with regular cleaning, attracting tenants and managing bookings, alongside utility bills.
Despite the extra admin, they’re increasing in popularity as a high-yielding alternative to a standard let, especially in coastal regions or big cities, where demand for short-term lets is high.
Holiday-let mortgage market
Many buy-to-let lenders require an Assured Shorthold Tenancy agreement of at least six months to be in place in order to lend to landlords, so they won’t accept holiday lets.
However, specific holiday-let mortgages are offered by some specialist buy-to-let lenders and smaller building societies. There are clearly more risks letting out a property to a revolving door of visitors for short periods, so these mortgages are often charged at a premium and may require a personal guarantee from the landlord.
In other words, landlords have fewer options to fund a holiday let, alongside stricter criteria and higher costs.
That’s why we’re seeing an increasing number of landlords looking at the bridging sector to help them fulfil their holiday-let goals.
Benefits of bridging finance for holiday lets
Bridging finance helps landlords who can’t access a standard buy-to-let mortgage because they want to let the property on a holiday-let or serviced accommodation basis.
It’s an alternative to a holiday let mortgage for those who require more flexibility and more speed.
Landlords can arrange bridging finance more quickly than a buy-to-let mortgage, enabling them to take advantage of buying opportunities. A bridging lender can move to offer within days and release funds just days later.
But bridging lenders do more than just move quickly. They’re also highly skilled in bespoke underwriting, meaning that instead of applying tick-box criteria that excludes many good borrowers, each case is taken on its merits.
For those who don’t meet the strict criteria of mortgage lenders, bridging finance can enable them to secure funding. This is particularly useful for certain groups of borrowers, including the self-employed, those with non-standard income or minor credit problems. At Roma we will also lend to first-time landlords, first-time buyers’ and older borrowers.
Bridging finance can also be more suitable for investors buying a holiday property that needs building work doing before it can be let out. In the traditional buy-to-let mortgage market, lenders won’t usually consider properties that are not ready to let.
A bridging loan can help landlords to buy and refurbish an unmortgageable holiday let property before switching to a mortgage in the future.
At Roma, for example, we can create a bespoke funding package, paid in instalments if needed, to fund refurbishment work while reducing the interest incurred.
Exiting a bridging loan on holiday lets
Bridging loans for holiday-let properties are usually six to 24 months long, at the end of which your customer needs to repay the loan, plus interest.
This can be done by either selling the property, paying off the loan with other means or refinancing to a longer term mortgage.
In the case of a holiday-let investment, the landlord will usually remortgage to a holiday-let mortgage to redeem the bridging loan.
However, holiday-let mortgages are limited and may not be as competitive as standard buy-to-let deals.
Another option is a bridge-to-term product, which could give the borrower a more secure exit strategy.
Bridge-to-term on holiday lets
Bridge-to-term or bridge-to-let products are products that effectively combine a bridging loan with a buy-to-let mortgage.
Instead of having to find a new lender to remortgage to at the end of the bridging loan term, the landlord automatically moves onto a longer-term product with the same bridging lender. Their bridging loan effectively turns into a mortgage.
It means they go into their short-term loan with a secure exit plan. Down the line they can still switch away to a holiday-let mortgage.
Bridge-to-term takes away the time pressure if refurbishment of the holiday-let property is delayed for example.
Roma Finance offers a fully flexible solution with a five-year fixed rate holiday-let mortgage that landlords can combine with a bridging loan to create a bespoke lending package.
The mortgage element can be approved at the same time as the initial bridging loan, so the customer has a secure medium-term strategy. And at the end of the five-year fixed rate they are free to remortgage into the holiday-let mortgage market.
How to choose a provider
There are lots of bridging lenders offering short-term loans to landlords who want to purchase a holiday-let property, and some that will offer bridge-to-term products.
So, how do you choose one?
- Remember you don’t need to go it alone. If you prefer the support of a specialist distributor, they can use their experience and expertise to help you source the right product for the borrower.
- Go straight to a lender if you want to deal direct. Call and ask them to talk you through their products, processes and lending criteria on holiday lets.
- Check if they work with limited companies as well as individual landlords.
- Ask about fees as well as interest rates to ensure you understand the overall costs.
- Make sure you understand the lender’s current timescales, especially if the landlord’s case is time-sensitive. There’s a huge variation in the processing speeds among short-term lenders.
The buy-to-let mortgage sector is competitive and thriving, but it doesn’t meet the needs of all landlords, especially those who want to let their properties on a short-term basis.
A bridging loan can support these landlords to fulfil their property investment goals.
Steve Smith is the National Sales Manager for Roma Finance, managing the sales team to enhance the broker experience and business growth. He has an impressive background and is dedicated to supporting the intermediary market. Steve has worked at Bank of Scotland, Shawbrook Bank and Glenhawk as well as Roma, in a wide range of management roles across residential and commercial lending.