Swathes of buy-to-let landlords in the UK have either switched or dabbled in the short-term let market in recent years, and the holiday let mortgage sector is keeping up with the trend.

The Holiday let mortgage market has gone from being a relatively niche product line to something that is now offered by a growing number of more mainstream lenders in recent years. This has coincided with the rise of the staycation, and the surge in popularity of platforms like Airbnb making it easier than ever for users to let out their properties to holidaymakers.

The Covid pandemic caused this growing trend to be further entrenched in the UK property market. There were numerous reports showing that some buy-to-let landlords were switching from long-term rentals to short-term lets due to overseas travel restrictions and heightened demand for UK holidays.

As a result, many mortgage companies have responded by growing their product options to cater for this market, making it easier for property investors to borrow on a home they intend to let out on a holiday let or short-term basis.

Holiday let mortgage choice expanding

New research from Moneyfacts, using data compiled on 1st September, has revealed that the number of options available in the holiday let mortgage market has increased by 72% since September 2021. The data showed there were 320 deal options available, and this is also almost double what was on offer in March 2020.

Thirty-one lenders now offer products in this space, which is a rise of six since September last year and growth of 11 since March 2020. These are mainly made up of building societies, for those on the lookout.

Like with the rest of the mortgage market at the moment, rates have been on the rise in response to the current climate. In March 2020, the average holiday let mortgage rate was 3.37%, whereas now the average deal comes in at 4.94%.

Although international travel is now relatively unrestricted compared to the height of the pandemic, there are many reasons that people remain more reluctant to travel, ranging from rising costs to the difficulties currently being reported in airports and across airlines.

This makes the “staycation” market even more appealing to many UK holidaymakers, while the rise in environmental responsibility is also believed to play a part in people trying to fly abroad less frequently.

Make an informed decision

While many property owners may be tempted by the short-term let option as a way to make some “extra cash”, there are some major differences between that market and the long-term buy-to-let landscape.

The level of input involved tends to be much higher in terms of customer turnover and property management. Demand can also be extremely seasonal depending on the location of the property, while certain properties have restrictions that mean holiday lettings are not allowed.

Therefore, while holiday lets may be a good option for many, it is important to weigh up the pros and cons between short-term and long-term renting.

Rachel Springall, finance expert at Moneyfacts.co.uk, said: “The demand for holiday let properties has been evident both from a landlord perspective and holiday makers, so it’s positive to see more lenders entering this niche arena and accommodating borrowers with more product choice.

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

She adds that government measures that could come into play in 2023 could bring some changes to the market and affect the holiday let mortgage sector, too.

“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. 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.”

BuyAssociation has a range of property investment options available for both holiday lets and long-term buy-to-lets. Get in touch today for more information.