Good time to snap up that holiday let

However, while bookings are soaring, sales of holiday homes remain flat and prices are still well below the peak.

According to last week’s Nationwide house price index, the average property in Cornwall is worth £195,406, almost 5% down on last year and 8% below the 2007 peak. In Southwold, Suffolk, prices are down 4% against last year and 2% on 2007.

The fall in prices and rising rents have boosted the yields investors can expect to 6%-7%. In the most popular areas of Cornwall, yields are even higher.

Liam Bailey, head of residential research at Knight Frank, said: “Sales are not as strong as they were last year and people are more cautious about buying.

“It has become more difficult from a tax perspective and also from a planning perspective, with local authorities imposing occupancy limits in certain areas.

“Clients are asking more questions. The key factors driving purchases are the popularity of the areas for rental levels and the maintenance costs. New-builds have been particularly popular.”

It comes as the government introduces tighter rules around the benefits of furnished holiday lettings, which currently help about 65,000 homeowners save £30m in tax. From Wednesday, the owners of furnished holiday lets will not be able to offset losses against their income including salary. Instead, losses can only be offset against income from other holiday lets.

It will also become harder to qualify under the furnished holiday lettings rules from April 2012. The relief will be restricted to properties that are let for a minimum of 105 days and which are available to let for 210 days, while lets must be no longer than 31 days. At the moment, you must only let your property for 70 days a year and have it available for letting for 140 days.

Jonathan Cunliffe at estate agent Savills in Truro, Cornwall, said: “We haven’t seen the big sell-off that some experts were predicting ahead of the new tax rules because rental volumes are so strong.

“Most homeowners have no problems letting their properties out for 15 weeks of the year. However, we have seen a price dip in recent years and values have not yet recovered to the peak we saw in 2007. With prices still depressed, it could be a really good opportunity.”

About half of buyers of second homes are cash purchasers, according to Kevin.

He said: “It is common to see buyers with bonus cash or inheritance money, older buyers picking up property for their grandchildren. The rest have either extended their existing mortgage, taken out a mortgage against their main home or secured a specialist loan against the property.”

A number of building societies offer specific “holiday let mortgages”, including Leeds, Bath, Principality and Scottish.

Bath has a lifetime discount deal at 0.79 points above its standard variable rate, so 6.08%, for those with a 20% deposit and has an early repayment charge of 5% for the first three years. It requires that rent must cover 125% of pay rate and the borrower must earn at least £15,000 a year.

Borrowers with a small existing mortgage on their main property could extend their loan.

Melanie Bien of Private Finance, the broker, said: “Royal Bank of Scotland gives ‘buying a second home’ as a reason for applying for a further advance. This might work if you have enough equity in your first home.”

Agents argue that properties in little-known spots offer better value for money.

Cunliffe said: “You can buy a three-bedroom cottage on the Lizard peninsula, at the southernmost tip of the British Isles, for £300,000, around half the price of the same property in a more popular part of Cornwall, but still command rents of about £1,000 a week in high season, a yield of around 7%.”