It goes without saying that many people within the UK are looking forward to their next getaway, whether it’s to say goodbye to the end of summer, or welcome in the autumnal season. Home Property Law Solicitor, Emma Jeffrey, looks at the rise in popularity of holiday lets and what property owners should consider before letting their home to holidaymakers.
Over recent years, the demand for short term lets within the UK has increased significantly, accelerated by the COVID-19 pandemic which restricted the country to domestic travel for a substantial period. Despite the world being open for travel again, a lot of people are still preferring the increased space, privacy and availability of amenities that holiday lets offer as opposed to the more traditional option of hotels. For some people in the UK, renting out their properties as short term holiday lets may be an appealing investment opportunity however, there are important factors to consider before doing so. Here, we look at two legal considerations.
Mortgage conditions
It is crucial that before listing a property as a holiday let, the homeowner reviews the conditions of their mortgage. If they already have a residential mortgage in place, there may be specific conditions either prohibiting the homeowner from letting out their property as a short term let or some lenders may require express consent first. If the homeowner refrains from consulting their lender for permission, this could constitute a violation of their mortgage terms which could lead to the lender pursuing legal action.
Some lenders may take a more lenient approach and be open towards homeowners letting out their property permitting a certain amount of commercial use a year or even issuing mortgages solely for the purpose of holiday letting. Often these products are not widely advertised so the homeowner would require a mortgage broker as an intermediary to arrange this type of product. Albeit positive for prospective holiday let landlords, this can come with stricter lending criteria – meaning a lower loan to value ratio offered coupled with higher mortgage rates. This mainly stems from the volatility of the holiday let market, which from a lender’s perspective, comes with more risk to their security if the income stream is not consistent all year round.
Restrictive Covenants.
In large cities such as Manchester and London, it may be tempting for owners of flats to let out their property to tourists or business customers. Not only will these homeowners (leaseholders) need to consider the conditions of their mortgage as mentioned above, but letting out a leasehold property means they will need to comply with the terms of their lease too.
Restrictive Covenants are clauses which indicate what you are not allowed to do at the property and in this context, are enforceable by the landlord. In relation to leasehold flats, there may be covenants such as, to only use the flat as a private residential home; not to use the property for any trade or business; and not to share the whole of the property (with others not party to the lease). Clauses of this nature are evidenced in most residential leases, essentially limiting the property to residential use only. It is important that the leaseholder is familiar with the covenants of their lease, as non-compliance could lead to the landlord initiating forfeiture proceedings.
Furthermore, if the leaseholder eventually decides to sell their flat following a period of letting out their property, the buyer’s solicitor may ask as part of the enquiry process, if there has ever been a breach of any restrictive covenants on the lease, to which the leaseholder will be legally obliged to disclose. For lay-people, leases may be considered complex due to the amount of legal jargon, nevertheless if they have any doubt regarding the meaning of a clause and its respective implications, they should seek legal advice.
The UK’s holiday let market may not see as much exponential growth as a city like Barcelona’s for instance, but it is unlikely that the demand will falter any time soon. As exciting as turning your home into a holiday let may be, it is not as straightforward as listing it on sites such as Airbnb. If the property is a freehold house and/or mortgage free, the homeowner has a greater deal of flexibility due to not having additional obligations to third parties, but they will still need to ensure they comply with the relevant planning, tax and insurance obligations before taking the step to list their property as a holiday let.
