April 24, 2023

After the boom – what is the future for Holiday Lets in the UK?

By Jason James, Corporate Account Manager

It wouldn’t be unfair to categorise the mood music around the Holiday Let market in the UK as ‘sombre’, to say the least.

A cursory news search shows how, in the last couple of weeks:

Second homes in Scotland are facing double council tax
Some local councils are planning to put in rules that limit second and holiday homes in their region
Opposition to business rate changes for holiday homes in Wales, which have increased the number of occupied days required for a holiday let to qualify for business rates
The government announced a consultation on requiring homeowners to acquire planning permission before being able to use their home as a short-term let.

What’s clear is there is a concerted effort – if not a backlash – to limit the spread of holiday lets after what has been a boom few years in the industry.

As interest rates are high and many landlords who got into the sector in 2021 face a remortgage, they can be forgiven for feeling nervous, but what is the real health of the holiday let market?

Two boom years

40% sounds like a lot, and it is.

That is the increase in holiday-let homes between 2019-22, according to BBC analysis.

This, of course, encompassed 2020 and 2021, when pandemic-impacted foreign travel became less attractive, and staying in the UK holidays were the preferred route of many.

Many portfolio landlords were part of this trend, seeing the opportunity to diversify their portfolios with short-term lets to compliment their longer ones.

A smart move at the time, but as we enter the 2023 holiday season to a gloomy backdrop, many might start to reconsider this position.

Cost of living, cost of holidaying

A report on the 2022 Holiday Rental Market in the UK by Mintel outlined how – while general assumptions were that overseas travel would cause a fall in the demand for UK holiday lets – the rising cost of living has put a halt to that.

“The rising cost of living is diminishing consumers’ sense of financial wellbeing, causing a heightened degree of caution that will cause some to re-evaluate their holiday plans,” the report said.

It found almost half of UK adults were interested in using a holiday rental property in the future, and 61% of holidaymakers.

This is backed up by findings from Statista Market Outlook, which said 15 million people used a holiday rental in the UK in 2022, and this would rise to 16.5 million in 2023.

So despite actions from government and councils, consumer demand remains, and as long as that is there, landlords can continue to offer high-quality holiday accommodation.

Stick or twist

As previously mentioned, many landlords might be considering their position in the Holiday Let market given the current context.

What is in their favour is the amount of demand for both short-term and long-term rentals.

Many of the factors that would have encouraged investors to enter the holiday let market – high demand from holiday goers wanting an alternative to foreign travel and the potential for greater return on short-term rentals – remain, and the benefits of a diversified portfolio still flow from that.

In a higher-rate environment for every letting type, remortgaging for the long-term may be too quick a decision, so taking advantage of trackers and trying one more summer with holiday lets could be a smart alternative to withdrawing entirely.

The atmosphere from local governments reflects something landlords should be considering anyway; how they can make their home fit and support the communities they are based in.

If they do that, they should have no worries in the market.