Holiday let deals rise as more lenders enter the market

Mortgage options for borrowers looking at holiday lets have increased by 72% since September 2021, rising to 320 options. This means choice is nearly double compared to March 2020.

In March 2020, amidst the pandemic, there were only 20 lenders catering for holiday let borrowers, but this has gradually risen to 31. In the last year to September, this has grown by six lenders alone.

Growing choice is good news for borrowers comparing deals with the most competitive package, and with interest rates rising, it has never been more important to compare the overall cost of a deal carefully and lock into a competitive rate for peace of mind.

The growing number of lenders could reflect the increased demand for UK holiday homes over the last few years.

In June, the Nottingham Building Society interviewed over 1,400 UK adults on holiday let homes. It found that over half of those surveyed who already owned a holiday home bought it in the last two years.

Furthermore, almost one in ten of the total number of people surveyed were serious about buying a holiday let in the next five years.

There are notable Government measures coming into play next year that are likely to impact the holiday let market. Most notably, there will be changes to council tax and small business rates relief.

Currently, owners of second homes in England can avoid paying council tax and access small business rates relief by declaring an intention to let the property out to holidaymakers. Even if the property is left empty, these homes will still be eligible for tax relief.  

However, by April next year, the government is set to bring changes to the tax system, which will mean second homeowners must pay council tax if they are not genuine holiday lets.

In order to qualify for small business rates relief homeowners will have to prove holiday lets are being rented out for a minimum of 70 days a year and must be available for occupation for 140 days a year.

It is hoped the changes will protect legitimate holiday let investors and crack down on others but may also deter potential investors who have doubts over meeting the new rules.

Holiday lets can be an enticing prospect for potential investors to earn some extra income, however, they will need to do their research to find the right property and location and perhaps use a listing service to get good exposure.

Amid a cost of living crisis, holiday makers may forgo a trip abroad and instead pick a vacation closer to home to reduce their costs. As we witnessed during the pandemic, demand for UK vacations fuelled the holiday let sector, but this was largely due to consumers feeling discouraged or not able to fly abroad.

UK holidays could then still be a profitable investment for landlords as consumers scrutinise their budgets and perhaps forego a trip abroad.

Borrowers who are tempted to invest must consider the upfront costs to get a property to a high standard so they can stand out from the competition, but also prepare themselves to experience seasonal dips.