How Do Short Term Lettings Work?

Hello! Steve here!

Let's talk about Short Term Lettings...

A phrase I have come across several times now hits home with a number of us I’m sure...

‘don’t let stormy weather cloud your judgement.’

With the mainstream media following a narrative which can easily instil fear and panic in most of us, it's important to take a balanced view on things and consider a wider approach, especially when looking into something as important as investing in property.

I must make the point that although we are at the sharp end of what’s going on in the property market, we don’t have a crystal ball. Having said this, as we are speaking with lenders, estate agents, property developers and investors on a daily basis, we do see patterns developing and behaviours change very early on.

Having been involved in arranging Buy to Let (BTL) mortgages as well as being a landlord myself for 20+ years, this is an area I take great interest in.

It's easy to look at the recent hike in rates and think BTL is no longer viable. I get that. Stress tests have become stricter and margins tighter and so turning away from this market may seem like a sensible thing to do. Last month we wrote about this in more detail. This week, with the start of a new event for us called ‘The Scottish Property Meet’, a monthly Property Education and Networking Event in Glasgow of up to 200 people, I want to touch on a form of BTL that is making real headway... Serviced Accommodation (SA) and Holiday Lets.

We’ll be going into more detail, with Case Studies etc. in the coming weeks but for now a brief overview of what is possible in this market.

First of all, renting property out is far more varied than when I started 20 years ago.

Typically, landlords took mortgages out in personal names and rented out to families, young professionals and students on an Assured Shorthold Tenancy type basis.

Nowadays, as well as this, we have more and more clients taking mortgages out in Limited Companies (for tax reasons mainly) with short term rentals increasing considerably year on year (as yields or income is higher). 

So, what are Short Term Rentals?

This is where landlords and investors rent property out from upwards of 1 night to several months at a time. In fact, before setting up Express Mortgages in 2004, when I worked for a brokerage, I lived in Birmingham for a few years. As like most of us, I didn’t want to spend the first 3 months in a hotel (as the boss agreed to cover my accommodation for this period), I wanted to live in a home from home. This was great because it saved him a lot of money and gave me more liveable space in nice surroundings. A 3-month Short Term Let was agreed and this was my first experience of Serviced Accommodation (SA). The landlord gets more rent and the person renting generally saves money from the higher cost of hotel charges whilst being in a more relaxed environment.

Airbnb and Serviced Accommodation are very similar. Some lenders don’t differentiate, while others do. They are both designed for people wanting to stay in a home from home, short term. Sometimes it's holiday makers, other times it's those working away from home. Both groups wanting an alternative to a hotel or guest house. Holiday Lets are generally thought of as properties you could use yourself or rent out to a family/group of people for either the weekend or a week or two holiday.

There are lots of lenders who lend for Holiday Let purposes. This is an established market with more mainstream banks lending for mortgage purposes.

Airbnb and SA have become a lot more popular since the pandemic. With more people holidaying in the UK and workers needing to be away from home more, this market has ballooned. We are seeing more lenders enter this space and lending criteria becoming more flexible.

As we plan for either additional income or retirement, the short-term lettings space should certainly be a consideration as it has many benefits from a cost and tax saving point of view, through to having the flexibility of being able to use the property yourself if you choose.

And who doesn’t want a nice week away in one of Britain’s amazing cities, rural areas or scenic coastlines?

To discuss your options, please reach out to the team here and see how we can help. We can't wait to hear from you!

All the best,

Steve

Express Mortgages is a trade name of Express Mortgage Services Ltd. Express Mortgage Services Ltd is authorised and regulated by the Financial Conduct Authority. [Reg No: 474427] Company registered in England & Wales no. 05167662

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