Holiday Let Market Predictions 2024/2025

Following the government’s recent changes to UK holiday letting regulations, a lot of people are wondering about the outlook for the holiday let market. Potential property investors are keen to understand if this type of property investment is still worth it, or if we’re facing a holiday let market collapse.

In this article, we draw on our experience and give six key predictions for the UK holiday let market …

Some existing holiday let owners will sell

After 16 years of low interest rates, some owners will feel that they have already benefited financially from their holiday letting experience and realise that it might be a good time to reconsider their options.

This decision could likely coincide with the owner’s knowledge that their young children have now grown up and moved on. As such, blissful family holidays in the cottage are not going to be a regular occurrence, so owning a second property won’t come in so handy.

With all the new government changes coming in, perhaps owners will conclude that now is the ideal time to sell and invest elsewhere, perhaps helping their grown-up children buy a flat for university.

Booking rental rates will increase

If the amount of attractive, good-quality holiday lets reduces, the mechanics of supply and demand will come into effect. Consequently, rental rates for the remaining UK holiday lets will increase beyond the usual inflationary amounts.

This means that owners who continue to operate their holiday let will likely make more money from their ventures. Meanwhile, the costs of owning a holiday let and honouring guest bookings remains the same.

More buyers will use limited companies

In order to keep the ability to offset mortgage interest, more investors will utilise the limited company (LTD or SPV) approach; owning their holiday let within a limited company, rather than their own personal name.

The LTD model isn’t for everyone. There are clear pros and cons to this approach, which we’ve written about here.

The trend of moving to the LTD model was seen in 2017, following the government’s punitive changes in the UK buy-to-let market. At present about 25%-30% of our transactions are LTD. Our outlook is that this will move to around 40%-45%, with the remainder continuing to be transactions in the buyer’s personal name.

Few locals will rent or buy former holiday cottages

Premium quality holiday let properties are far more expensive than the national average property price. Our data shows that, on average over the last 2 years, a holiday let costs around £360,000 vs the national average of £288,000 and this is because they are usually in premium tourist locations and have various desirable features to them which is why they worked well as holiday lets and attracted paying guests.

Generally speaking, we don’t think that holiday let properties work very well as buy-to-let properties as holiday lets are typically period homes in coastal or countryside locations. Buy-to-lets tend to thrive in urban areas with flourishing work industries and plentiful travel options.

However, some wealth shift may take place in local areas, where one family sells their house and upgrades into what was formerly a holiday let, meaning that somebody else moves into their old house, and so on.

However, we predict that the above wealth shift will happen to a very limited extent and any former holiday lets that get sold will be bought by new holiday let investors or second property owners.

Tourism may drop in certain areas, affecting local businesses

The government’s new planning regulations will prevent any new holiday lets being opened in the known UK tourist hotspots such as Scarborough, Port Isaac, Southwold, and St Ives. This is likely to be a good thing and may bring about more balance to such over-populated areas.

However, there is the law of unintended consequences! If the planning permission rules are not tight enough, areas without a tourist problem could be targeted and this will penalise local tourism and business.

Holiday let mortgage rates will continue to be available and become more competitive

Why will we see this? Put simply, it’s a good business for mortgage lenders.

Leeds Building Society decided to run a trial in North Yorkshire and North Norfolk for 12 months, to see how not lending to holiday let mortgages in these postcode areas impacted housing availability.

The rest of the mortgage lender landscape reported their keen interest in supporting the holiday letting model. They find that the risk profile of the holiday let mortgage business is excellent, with almost no arrears and no defaults on mortgages. Plus, the transaction usually comprises a better property as security and a better quality of applicant.

If inflation continues to drop, the Bank of England has made leading suggestions that rate cuts might follow. If that happens, it’s probable that mortgage rates will follow too, meaning lower interest costs for future holiday let investors.

Summary

Here at HCM, our outlook remains optimistic, and we don’t think there’s any possibility of a holiday market collapse. We believe that despite the changes made by the government, UK holiday letting remains a solid investment plan. The desire to stay in beautiful cottages with all the facilities of a comfortable home, rather than just booking a hotel room, is not going away! Consumer demand both domestically and internationally will continue to rise year on year.

As some holiday let owners cash out and move on, quality cottage property stock will become available to the sales market. This in turn allows new holiday let owners to purchase their perfect property and continue to make strong rental income from paying guests, whilst still providing a base for them and their families and friends to enjoy free holidays in their cherished homes.

We shall revisit these predictions in 12 months’ time!

Disclaimer: These speculations are just that – a guess at the future. Nothing in this article should be taken as financial advice or relied upon to make any property or financial decisions.

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