The UK holiday let market has been swarming with demand for the past few years, and the pandemic has solidified its place as a truly valuable asset class for investors.
Between 2020 and 2021, there was a 173% rise in the number of applications for holiday let mortgages, according to specialist lender Hodge Bank. Meanwhile, holiday let and short-term let owners raked in almost £28,000 in annual income in 2021, which is a 33% rise compared to 2019, according to Sykes Cottages.
All the indications are there to show that the holiday let market boom might be here to stay, as the UK adopts a new love of staycations. While this trend was already becoming apparent pre-pandemic, trips abroad have plummeted since Covid struck and people craving a change of scene are increasingly choosing holiday lets as a “home from home” option over hotels.
Swathes of lenders entering the fold
Another clear sign of the strength of the sector is the fact that so many lenders are now piling into the space. New research from Moneyfacts shows that there are now an incredible 231 buy-to-let mortgage products available for holiday lets. This is up from just 74 in August 2020.
In terms of lender numbers, there are 27 different operators now offering holiday let mortgage products. This is an increase of 13 from the low point in August 2020, and up by seven compared with March 2020.
Interest rates are relatively competitive compared to last year. The average fixed rate is now 3.92%, which is a fall from September 2021 when you would get an average rate of 4.14%. So now could be a good time to borrow to buy a holiday let and secure a good value deal.
Spend money to make money
While investing in a holiday let makes a lot of financial sense to many, including those who are on the fence between opting for a traditional buy-to-let or a short-term let, it is a competitive market. Having a great property to offer, with as many added extras as possible, can make a property stand out from the crowd.
Rachel Springall, Moneyfacts financial expert, says: “If the demand for a UK holiday in 2022 lessens, consumers may still get a reasonable return on any investment, but it’s vital for them to ensure they are offering a let during a bustling season so they do not miss out on a demand spike.
“There may also be the need to fund upfront costs to get a property at a high standard to let, to entice a larger clientele and to stand above the competition. Should this be the case, borrowers will need to think carefully about what can make them a unique booking, and this will often depend on their location and the time of year.”
Changes afoot but the outlook remains positive
There are a few changes coming up from the government that could impact some holiday let owners. For example, new small business rates relief rules are coming into effect from 2023. According to Rachel Springall, the government also wants to crack down on some rogue traders in the industry so as to protect genuine holiday let owners.
She says: “The government announced new measures to ensure homeowners letting out a property are not abusing a tax loophole. To qualify for business rates, holiday lets will need to be rented for a minimum of 70 days a year and available to be rented out for 140 days a year under new rules which are to come into force from April 2023, and evidence will need to be shown.
“The move is geared to protect genuine holiday lets and crack down on others, so it will be interesting to see how this will affect those considering an investment, but are perhaps not quite confident they can meet the new requirements.”
But according to Bev Dumbleton, chief operating officer at Sykes Cottages, the forecast for the sector is still optimistic as it looks like the heightened demand in the market is here to stay, at least for a few years.
She adds: “With the interest in holidays closer to home likely to remain a fixture for years to come, those considering investing in a holiday home in 2022 could see great success – particularly if they choose a location which has proven fruitful for those already in the market this year.”