How to buy a holiday let property

Categories: guides | buy to let mortgage guides

The attraction of holiday lets is undeniable; they provide a dual-purpose investment of generating income and providing a personal retreat – yes, you can also take holidays in a property you buy to let to tourists.

Yet, the market differs from traditional buy to let investments due to its seasonal nature and unique management demands.

This guide aims to steer anyone from first time holiday let property investors, retirees looking to invest their pension in a holiday let property to seasoned landlords in the right direction when it comes to buying holiday let property.

We’ll also help you understand holiday let mortgages, both for traditional self-catering properties and short term lets that you might be looking to let out on portals like AirBnB.

Contents

Why invest in a holiday let?

The primary advantage of holiday lets is the potential for higher yields compared to standard rental properties. With the correct location and management, holiday lets can demand premium rates during peak seasons, offsetting the quieter periods.

This potential for higher returns is often one of the first considerations for investors looking to enter the holiday rental market. This is true both of investors new to the marketplace, and landlords looking to diversify into high yielding areas of the market.

Using your investment property for your own holidays

The flexibility of using the property as a personal holiday home adds inherent value. Owners can enjoy the property themselves, making it a personal sanctuary as well as a financial asset.

Investing via a limited company may offer tax benefits

Whilst the tax position for holiday lets changed in April 2025, you may find that investing in a holiday let via a limited company is beneficial, especially if you are a higher rate tax payer. You will need to speak to a professional tax advisor, but read our guide “Buying property via a limited company” to get a feel for the subject.

Tax incentives can dramatically improve the overall profitability of a holiday rental investment, so don’t be intimidated by this, do your research, it could be very worthwhile for you.

Diversifying a property portfolio to spread risk and capitalise on the benefits

Holiday rentals also offer a form of diversification in a property portfolio. By investing in a holiday rental, investors are not only looking at rental income but also potential capital appreciation. This can be particularly appealing in tourist hotspots where property values may rise over time due to increased demand and limited supply.

Understanding market trends

The holiday rental market is influenced by a variety of trends, from travel behaviours to economic conditions. Keeping abreast of these trends can help investors make more informed decisions. For instance, the rise of remote working has led to an increase in midweek bookings, as more people can work from anywhere.

Additionally, trends such as eco-tourism and the desire for unique, experiential stays can inform the type of property and facilities that may be most appealing.

Be aware though, that if you want a holiday let mortgage to help with your investment plans, a mortgage lender will not accept structures like shepherds huts, timber lodges, caravans or similar, that may give you a unique selling point, but could technically be loaded on the back of a lorry and taken away.

Investors should also be aware of seasonal fluctuations in demand. Understanding peak and off-peak periods can aid in setting competitive pricing strategies and optimising occupancy rates. It is crucial to analyse market data and forecast trends to ensure the property remains appealing to potential guests throughout the year.

Differentiating from traditional lettings

Unlike traditional lettings, holiday rentals require a more hands-on approach to management. This includes frequent turnover of guests, regular maintenance, and constant marketing efforts to keep the property booked.

The shorter letting periods mean owners need to be adept at managing guest experiences and ensuring the property remains in top condition in order to maintain a good reputation and positive reviews.

Additionally, the regulatory landscape for holiday homes can differ significantly from that of long-term rentals. Local regulations, such as short-term rental permits or zoning restrictions, must be thoroughly researched and adhered to. Failure to comply with local laws can result in fines or restrictions on the ability to rent the property.

Where to buy a holiday property in the UK?

Location is paramount when considering a holiday property. The right location not only ensures a steady flow of guests but also enhances the property's long-term appreciation potential.

In the UK, popular regions for holiday properties include the Cotswolds, Cornwall, the Lake District, and the Scottish Highlands.

Each area offers unique attractions, from breath-taking landscapes to cultural landmarks, attracting diverse demographics of holidaymakers.

These regions are known for their natural beauty and attract visitors all year round, making them reliable choices for holiday let investments.

When selecting a location, consider factors such as local tourism trends, accessibility, and the availability of amenities. It's also vital to assess the competition and occupancy rates in the area to gauge potential profitability.

Closeness to airports, train stations, and major motorways can significantly affect a property's accessibility and appeal to guests. However, you don’t want the property to be so close that noise will disrupt the peace and tranquillity holidaymakers will be looking for.

Evaluating local attractions and demand

The closeness to local attractions can heavily influence the success of a holiday let. Properties situated near popular tourist sites, national parks, or beaches tend to attract more bookings. Researching the types of attractions in the area and their popularity can provide insights into potential guest demographics and preferences.

Additionally, understanding the demand for different types of accommodation can help tailor the property to meet market needs. For example, family-friendly properties may be more successful in areas with theme parks or family attractions, while luxury accommodation might thrive in regions known for their upscale dining and shopping experiences.

Assessing infrastructure and amenities

The quality of local infrastructure and amenities can also impact the attractiveness of a holiday rental.

Properties with easy access to public transport, shopping centres, and healthcare facilities can appeal to a broader range of guests. Furthermore, the availability of local services such as cleaning companies, maintenance providers, and property management firms can ease your operational burden in managing the property.

Investors should also consider the potential for future development in the area.

Upcoming infrastructure projects or planned tourism initiatives can enhance property values and increase guest numbers. Staying informed about local government plans and community developments can provide a competitive edge.

Is it profitable to buy a holiday home for letting?

Profitability hinges on several variables, including property location, seasonal demand, and management efficiency. Conducting a detailed cost-benefit analysis is essential. This should encompass projected rental income, maintenance costs, and potential void periods. By accurately forecasting expenses and income, investors can gauge the viability of the investment.

To maximise returns, consider using dynamic pricing strategies that adjust rental rates based on demand fluctuations. This approach can help ensure competitive pricing and optimise revenue throughout the year. Holiday lets typically have a low, medium and high season:

  • The low season: November to February
  • The medium season: March to early June, September to October
  • The high season: June to August and school holiday periods

Additionally, investing in high-quality furnishings and amenities can enhance guest satisfaction and encourage repeat bookings. Satisfied guests are more likely to leave positive reviews, boosting the property's reputation and attracting more visitors.

Analysing competitors in the area can provide insights into optimal pricing strategies and highlight potential service gaps that can be capitalised on. Understanding what similar properties offer in terms of pricing, amenities, and guest experiences can inform your approach to differentiating your holiday let in a crowded market.

How to buy and let a holiday cottage: financing

Securing finance for a holiday let mortgage can be more complex than conventional mortgages. Lenders typically require a higher deposit, and interest rates are higher than a regular residential mortgage due to perceived risks associated with seasonal income streams.

However, the yields from holiday lets can significantly outweigh the difference in mortgage interest rates – they are known within the industry as one of the most profitable types of property investment.

Understanding these financial subtleties is key to planning a successful investment strategy.

Specialist holiday let mortgages are available for both traditional self-catering properties and short-term lets, (e.g. AirBnB style lettings based on days rather than always based on bookings made over week’s at a time).

It is advisable to work with brokers experienced in this niche to navigate the complexities of lending criteria and identify the best options. As a specialist broker, the team here at Commercial Trust can provide valuable advice on mortgage products and help take all the stress out of the application process.

Can I use my pension to buy a holiday let?

You can’t buy a residential property through your Self-Invested Personal Pension (SIPP) fund. You can buy a commercial property (a building a business operates from) through a SIPP though, and the commercial mortgage advisors here can help you with that.

However, if you want to use a pension cash lump sum and put it into property, this is entirely possible.

How much is tax when buying a holiday let?

Taxes vary based on individual circumstances and property specifications. Beyond income tax on rental earnings, consider Stamp Duty Land Tax (SDLT) and potential capital gains tax upon selling the property.

Engaging a tax advisor can provide clarity and ensure compliance with all obligations. Advisors can help navigate the complexities of tax legislation and identify opportunities to minimise tax liabilities.

It's also important to keep detailed records of all income and expenses related to the property. Proper documentation can facilitate tax reporting and help substantiate claims for deductions or allowances. Utilising accounting software tailored to property management can streamline this process and reduce the risk of errors.

Management and operational challenges

Owning a holiday let requires active management to maintain high standards and guest satisfaction.

Consider employing a professional management company to handle bookings, maintenance, and guest communications. This can be particularly beneficial if the property is located far from your main residence. A management company can provide expertise and resources that individual owners may lack, ensuring the property is well-maintained and guests have a positive experience.

Implementing an efficient booking system and utilising self-catering property platforms can streamline the reservation process and enhance visibility. These platforms offer marketing reach and tools that can significantly increase booking rates and simplify management tasks. Additionally, having a dedicated website for your property can help attract direct bookings, reducing reliance on third-party platforms and their associated fees.

Regular communication with guests before, during, and after their stay is crucial to building a positive reputation and encouraging repeat visits. Providing personalised touches, such as welcome packs or local recommendations, can enhance the guest experience and set your property apart from competitors.

Is buying a holiday let a good investment?

The decision to invest in a holiday let should be guided by a thorough risk assessment. Evaluate the impact of external factors such as economic downturns, changes in travel behaviour, and regulatory modifications on your investment. Understanding these risks can help investors develop contingency plans and mitigate potential losses.

While the potential for highly profitable returns exists, it is accompanied by risks unique to the holiday let market.

Investors should also consider their personal risk tolerance and investment goals when deciding whether a holiday let fits into their wider financial strategy.

Diversification of investments can also help manage risk. By not relying solely on holiday let income, investors can cushion against periods of low demand or unforeseen expenses. Exploring other investment opportunities alongside holiday lets can create a more balanced and resilient portfolio.

Final thoughts

Investing in property is always a big decision, because ultimately it’s one of the most expensive things most people will buy. Buying a holiday let property will require appropriate planning but by considering location, financing, management, and tax implications, you could enter an exciting industry and make very profitable returns.

Whether you're an experienced investor or exploring holiday rentals for the first time, the insights provided here aim to enable you to make informed decisions aligned with your financial goals.