28 April 2024

Holiday let can provide a haven for landlords in search of higher yields

By Spencer Gale, Head of Mortgage Networks and Clubs for Quantum Mortgages

There is no mistaking the fact that landlords have in the main found the market to be challenging over the past few years. The higher interest rate environment, coupled with restricted affordability and changes to how buy-to-let income is taxed, have not only hit landlords’ profits but also forced them to potentially scale down their portfolio expansion plans or, worse still, sell property to help with cash flow.

Buy-to-let landlords have therefore been seeking avenues that promise not just stability, but also increased returns; that’s why there has been a noticeable shift towards higher yielding assets over recent years, such as Houses in Multiple Occupation (HMOs) as well as semi-commercial and commercial properties. Another avenue that has gained significant traction among landlords is holiday let properties.

Mintel Group Ltd recently documented that “52% of UK adults expressed interest in staying in a holiday rental property in the future. Holiday rental properties continue to show the highest growth potential of any accommodation type. Usage of holiday rental properties is currently highest among 16–44 year-olds. However, the rising population of older adults represents a big opportunity to the holiday rental property market.”


Unlike traditional buy-to-let properties, holiday lets often command higher rental rates, especially during peak seasons. This increased earning potential can significantly boost the landlord's income, making holiday lets an attractive investment option, especially when compared to the ‘vanilla’ buy-to-let market, where properties are struggling to financially wash their faces at the current time.

The past few years have seen a resurgence in the popularity of staycations, following the onset of the Covid-19 pandemic in early 2020, but rising demand has also been driven in part by factors such as economic uncertainty and a desire for convenience. As a result, holiday let properties in desirable locations across the UK have experienced increased demand from holidaymakers seeking short-term accommodation. This rising demand translates into higher occupancy rates and rental incomes for landlords.

Similarly, holiday let properties offer landlords greater flexibility and control over their investment. Unlike long-term rentals, landlords have the freedom to use the property for personal holiday or short breaks when it's not occupied by guests. This flexibility appeals to many investors who value the opportunity to enjoy their investment while still generating income from it.

For portfolio landlords, with economic uncertainty and market volatility a constant concern, a well thought out diversification strategy has become crucial. Holiday let properties provide an excellent opportunity for landlords to diversify their property portfolios. By spreading their investments across different asset classes, including holiday lets, landlords can mitigate risk and enhance their overall investment strategy.

For some landlords, investing in holiday let properties goes beyond financial gains; it's also an investment in lifestyle. Owning a holiday let allows landlords to own a piece of desirable real estate in picturesque locations, offering the potential for personal enjoyment along with financial returns. This blend of lifestyle and investment appeal makes holiday let properties an enticing proposition for many investors.

Another factor driving the popularity of holiday let properties has been the favourable tax treatment they often receive compared to traditional buy-to-let investments. For example, furnished holiday let property owners have been able to claim 100% of the mortgage interest as an expense.

However, from April 2025, holiday let owners will lose their mortgage interest tax relief, aligning them with the Section 24 rules that previously only covered residential landlords. Those landlords in higher tax brackets will be most affected, increasing their tax liabilities. It wouldn’t be a surprise to see holiday let ownership structures change after April 2025, with a rise in purchases through limited company vehicles to minimise the effect of the tax changes.

Finding the right partner

It’s vital that mortgage advisers work with their landlord clients to help them make the most out of their diversification strategy and that includes finding them the right lender for their requirements.

It’s also important to understand how there is further diversification in terms of property type within the holiday let market. For example, at Quantum Mortgages we are one of the few lenders which caters for the rising demand for Multi-Unit Freehold Blocks (MUFB’s) with a Holiday Let BTL product.

We lend on both single units and MUFB’s up to 75% loan to value (LTV) and both individual and Limited Company applications are accepted, so we can help those landlords looking to mitigate the changes to tax relief next year via an incorporated structure.

At Quantum, we also recognise that holiday let isn’t just for highly experienced landlords with large existing portfolios. Instead, we just require the borrower to hold at least one existing buy-to-let property and have a minimum of 12 months’ market experience.

Our other requirements are simply that the properties are in a known tourist area and will be listed on at least a recognised holiday let listing website. In addition, an average seasonal rental value (x 35 weeks) can be used in areas with materially below average unemployment rates of less than 3.6%.

Despite the economic downturn and lending market fluctuations, the demand for holiday let properties has shown resilience. The allure of short breaks and holidays remains strong, driving sustained demand for holiday accommodation. This market resilience adds to the attractiveness of holiday let investments, providing landlords with a relatively stable income stream even during uncertain times. Furthermore, the shift towards higher yielding assets among landlords has propelled holiday let properties into the spotlight as a popular investment choice.

With their potential for attractive yields, flexibility and lifestyle benefits, holiday let properties offer an attractive proposition for investors looking to diversify their portfolios and maximize returns. As mortgage advisers, understanding the motivations behind this trend can help you better serve your clients and identify suitable investment opportunities in the thriving holiday let market.

If you are interested in hearing more about Quantum Mortgages proposition and how we can add value to your experienced and professional landlord clients, you will find details on our website https://quantummortgages.co.uk/, alternatively you can contact our broker support team on 01908 909650 option 1, or you can email brokersupport@quantummortgages.co.uk

If you wish to speak to your local Business Development Manager, find out who looks after you, put your postcode in here https://quantummortgages.co.uk/team/.

For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.