A client wants to buy a holiday let. They plan to advertise it on Airbnb, stay there themselves for several weeks each year and have never previously been a landlord. Before price even enters the conversation, there are already several points for brokers to consider.
How much personal use will a lender permit? Does landlord experience matter? Are there restrictions around how the property is marketed? Add an applicant who is an expat or earns income overseas and the case takes on another dimension.
This is why criteria play such an important role in holiday let lending. The people buying these properties, and their reasons for doing so, can differ considerably. As a result, a product that works well for one client may be unsuitable for another despite looking attractive on rate.
Personal use is a prime example. While some borrowers will view a holiday let purely as an investment, others may want to generate rental income while enjoying the property themselves at certain times of the year. Clarifying this is vital as lenders can place different limits on how often an owner is permitted to stay there.
Experience can also influence the options available. There’s no reason to assume that someone buying a holiday let will already own rental property. For some, it may be their first step into letting, and lender appetite for first-time landlords can vary. The strength of the wider application therefore needs to be considered alongside previous experience rather than the latter automatically defining the case.
The way holiday properties attract guests has changed too. Online booking platforms such as Airbnb have become an established part of the sector, giving owners a direct means of marketing their property. Yet lending requirements around letting arrangements can differ, so the client's plans for generating bookings need to form part of the mortgage discussion.
Then there are applicants whose financial circumstances sit outside a standard UK income profile. Expats may want to buy a holiday property in the UK, while other borrowers could receive some or all of their earnings overseas. Assessing these cases can involve additional considerations around income evidence and currency, making lender appetite particularly important.
Geography can have an influence too. Holiday lets are not limited to established coastal resorts or traditional countryside destinations, and buyers may identify opportunities across the UK. A lender's geographical policy can therefore determine whether a property is eligible before other aspects of an application are considered.
What makes this particularly relevant for brokers is the way these factors can overlap. There is no neat dividing line between the first-time landlord, the expat borrower and the owner looking for personal use. The same client could fall into two or three of these categories. That places greater emphasis on establishing the full circumstances behind an enquiry before concentrating on product selection.
Inevitably, as lenders we have a balance to strike. Criteria need to protect responsible lending standards and ensure the underlying proposition is viable, but this does not necessarily require every applicant to fit the same profile. This is an area where building societies can play an important role. The ability to assess cases individually can be particularly useful when an application contains an element that does not fit neatly within an automated or highly standardised lending model.
None of this diminishes the importance of price. Holiday let owners will naturally want a competitive mortgage and brokers will continue to compare rates as part of their advice, but price cannot be viewed separately from eligibility.
A strong rate is of little use if the client's intended use of the property or financial circumstances do not meet the lender's requirements. Equally, a borrower should not necessarily be viewed as unsuitable simply because their circumstances are less common. Ultimately, the strongest holiday let propositions will be those that combine competitive pricing with criteria that reflect the increasingly varied nature of the market.
Samantha Ward, Commercial Director at Hanley Economic Building Society
