How to finance a holiday-let business: 4 attractive finance options

how to finance a holiday-let business

Holiday-let businesses have become increasingly popular among property investors over the course of the pandemic. They purchase a large property, such as a country estate, with the intent to converting them into several holiday-lets. Combined, the acquisition and conversion could run into the millions. This asks for a variety of financial solutions to meet different investors’ requirements. Here, we’ll explore a few options how to finance a holiday-let business.

Is a holiday-let a good investment?

The UK’s domestic tourism industry has experienced an uptick in activity since the start of the pandemic. Although it was already in a position of strength before Covid-19 reared its head. Rewind to 2019. Around 123 million Britons took domestic holidays that year. That was much higher than the 93 million who took overseas trips.

Source: World Tourism Organisation

Lockdowns damaged the industry in 2020, showing a 60% reduction in domestic holidays that year. However, as rules relaxed within the UK, the market began to thrive once again, whilst international travel restrictions remained in place. In 2021, it was estimated that £56.2 billion was spent by domestic tourists in Britain – that’s an increase of 65%, year-on-year.

Source: Visit Britain

Estimates suggest that an average holiday-let property earns 30% more yield than a traditional buy-to-let. Of course, it’s important to remember that these property types will often sit empty for long periods. In fact, they’re typically occupied for only around 24 weeks of the year. Hence, on average, holiday-let investments offer an 8% annual return.

The competitive returns on offer, coupled with the buoyant state of the UK’s tourism industry and the prospect of more overseas visitors to Britain’s shores are combining to create higher demand for holiday-let businesses.

Source: Mortgage Introducer

is holiday-let a good investment

What to consider when investing in a holiday-let

What should investors look out for when financing a holiday-let business?

1) Location

Investors will often be looking for holiday-lets in rural areas. From the coastline of Cornwall to the plains of the New Forest and hills of Lake District, a popular location is essential if you want to finance a holiday-let business.

2) Lender experience

As such, it’s important that investors work with lenders that have experience in working on cases in rural areas, or specific parts of the country. This becomes particularly important when it comes to valuing the property and underwriting the deal.

holiday-let finance options

How to finance a holiday-let business

When the market sparked back to life in 2021, interest from investors naturally rose. Indeed, MFS has seen a higher number of enquiries from property buyers seeking financial solutions for holiday-let investments. But property investors wanting to finance a holiday-let business must think carefully about potential financial solutions.

Option 1: Buy-to-let mortgage

Our buy-to-let mortgage provides finance for short-term and holiday-let businesses, due to its bespoke approach to lending. You can borrow several million pounds over a 2 or 3 year term, even in complex circumstances. Found out more details about our buy-to-let mortgage.

Option 2: Bridging loans

A bridging loan on the other hand, could also prove a viable financial solution – if only to support the initial purchase. They provide the breathing space for property investors to arrange a longer-term financial solution, without the worry of missing out on an investment opportunity.

Option 3: Property refurbishment loans

Using bridging loans for property refurbishment is also common within the holiday let market. After all, the décor and facilities must be first class to attract holidaymakers. Investors will often want to add specialist features or a touch of luxury to the property, which may result in additional refurbishment works.

Option 4: Large loans

We also see a higher demand for large loans among holiday let buyers. The reason? The investment can include the purchase of the property itself, the refurbishment and renovation of the property, or even a complete conversion. Have a look at this case study how a large loan covered an impressive country manor and surrounding properties.

From the size of the loan to the nature of the property and its use, it takes a specialist lender like MFS to finance a holiday let business. For more information about how we can support property investors considering a holiday let investment, get in touch with our friendly team of experts.

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