Stronger Than Ever: UK Holiday Let Market Update

As we approach the summer, is it time to invest in your own holiday let? Our latest article examines what makes these properties so popular with investors and how to source the right property finance.

With Easter break coming to a close and the summer holidays in the not-so-distant future, the holiday let market is warming up again (even if the weather isn’t).

As the wider property market settles, there is a clear returned interest in investing from prospective holiday letters. 2022 was tricky for holiday let investors; excessive vendor demands, high purchase prices, stiff background competition and a general lack of quality property drove many clients away from the market altogether.

Now, however, we have noticed a real shift in activity. Currently, we are seeing more sellers than purchasers in the holiday let space, offering prospective property investors a unique opportunity.

Is the demand for holiday let homes still there?

We saw a considerable increase in demand for holiday lets during the pandemic, when international travel was heavily restricted. However, many were sceptical that this demand would last once international travel returned.

However, three years later, staycations continue to be a popular choice with holiday goers. A study by Sykes Holiday Cottages reveals that bookings for its holiday lets in 2023 are up 9% compared to last year already. Furthermore, 84% of owners say their bookings are stronger than ever and expect this trend to continue for the next five years.

The report also found that 50% of holiday letters say bookings have increased in the post-pandemic market, and 63% plan on growing their holiday let portfolio in the next five years.

Similarly, and despite the challenges mentioned above, the report shows that new owner enquiries from prospective holiday letters increased by 173% last year. Clearly, many people want to holiday in the UK, and more investors recognise it as a profitable industry.

What are the benefits of investing in holiday lets?

With such high demand and ongoing success in the sector, property investors interested in diversifying into this market can be reassured of the stability of these property types.

Holiday let owners benefit from substantial annual returns, with the Sykes report highlighting that the average owner earned £24,000 in revenue from their holiday let property last year, up 59% from 2019.

The highest earning regions for 2022 were Cumbria & The Lake District, Cotswolds, Peak District, Cornwall and Dorset. Annual income for two-bedroom properties in these areas ranged from £20,000-£28,000, and for four-bedroom properties, £36,000-£44,000. Properties with hot tubs, WIFI and which allowed pets could earn up to 37% more.

Typical yields on holiday lets are also much more competitive than standard buy to let properties. Yields for holiday lets are typically between 6-10%, with an average return of 8% compared to a buy to let’s 6%.

Data from Schofields in 2022 showed that, in peak season, a holiday let could earn you in a week what a buy to let could deliver in a month, highlighting once more the competitive benefits on offer for prospective investors.

How easy is it to source a mortgage for a holiday let?

Following on from last year’s mortgage market activity, it’s understandable that some clients have concerns about interest rate levels in the holiday let space. Whilst some markets have seen some significant increases, holiday let mortgages are mostly financed by local building societies. As such, the rates have remained remarkably low.

Looking closely at mortgage interest rates, clients typically opt for variable rates when sourcing property finance. These variable rates mostly track the Base Rate and, as such, will likely continue to be a popular choice amongst property investors for the foreseeable future. With the expectation of just one more Base Rate rise this year, if any, these variable rates are a reliable and competitive option. Whatever your holiday let investment plans, our expert team can help you find the most suitable finance options.

As the holiday let market remains a more specialist sector, borrowers may also benefit from free valuations and free lender arrangement fees depending on the mortgage product. Some lenders within the space offer much more flexible RTI calculations, allowing holiday letters the opportunity to borrow more for their investments. Read our Holiday Let Mortgages FAQs for more information.

To see what kind of deal you could offer, speak to our expert brokers here. As a team, our brokers specialise in holiday let property finance and can help you get started or continue your holiday let property investment journey. Submit an enquiry here, or call us on 0345 345 6788 for the Commercial line.

12th April 2023