Borrowers spoilt for choice as holiday let market explodes

Holidays in the UK have soared in popularity as the pandemic has hobbled travellers. Luckily, the number of holiday let loan products has trebled since 2020, making it easier than ever to tap in to this demand.

Analysis from Moneyfactscompare.co.uk shows that there are now 231 buy-to-let mortgages eligible for holiday lets, a 25% increase in the number of available deals available since September 2021. Looking further back, in August 2020 there were just 74 similar deals available.

There are more lenders entering this part of the market too, with 27 brands - mainly building societies - offering holiday let loans. This is an increase from 25 in September 2021 and 21 in April 2021.  

The average cost of fixed-rate mortgage deals available on holiday lets is also becoming more competitive. In January 2022 you would pay an average rate of 3.92%, down from 4.14% in September 2021.

Borrowers are flocking to the holiday let sector in droves: specialist lender Hodge reported it saw a 173% increase in holiday-let mortgage applications in 2021 compared to the year before.

However, second-home owners should be aware the government is working to close a loophole which allows people to dodge tax by claiming their often-empty properties are holiday lets. The crackdown will see holiday lets having to be rented out for at least 70 days a year to qualify for small business rates relief – and owners will have to prove this when the new rules come in next year. 

“As the desire for a UK vacation rose due to the pandemic, the prospect of earning some extra income through a holiday let has spurred borrowers into action and lenders are catering for this demand,” said Rachel Springall, finance expert at Moneyfactscompare.co.uk. “There are now more than 200 options available for borrowers comparing buy-to-let deals designed for holiday let, and 27 lenders are on board. While the rise in choice is positive, the market is still relatively niche but could grow further with demand.”

She added it is not clear yet whether such buoyant activity in the holiday let market can continue. If demand wanes in 2022, consumers may still get a decent return on their investment as long as they let their property at the peak time so as not to 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.”

Springall suggested taking advice from an independent financial adviser before taking on borrowing for a holiday let, because of the new rules on small business rates relief coming in to force from April 2023. “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.”