Holiday let investors in line for better deals thanks to mortgage rate war

Property investors buying holiday lets are benefiting from increased competition between mortgage lenders with more deals and lower rates.

In recent months, lenders have pumped more money into the holiday let market. Last summer there were 14 firms lending in this sector, but this has now increased to 25 and the majority are building societies.

Borrowers now have a choice of 186 mortgage deals, more than double the 74 available in August 2020, according to Moneyfacts, an analyst.

It comes amid increased competition between lenders which has begun to push down rates, said Joe Stallard of House and Holiday Home Mortgages, a broker. However, average rates still have some way to fall before they hit pre-pandemic levels.

“It’s been noticeable in the last month or so that rates are starting to sharpen up in the holiday let space, but there’s still room to improve,” said Mr Stallard.

The average fixed rate of a holiday let mortgage is 4.14pc, according to Moneyfacts, compared with 3.37pc in March 2020.

“While rates improving is great, it’s also worth remembering that lending on this basis also poses a bit of a greater risk to lenders. Therefore people shouldn’t expect to achieve similar rates to residential mortgages, as these are commercial ventures and need to be priced accordingly,” Mr Stallard added.  

With foreign travel still largely in a state of flux, the staycation boom is expected to continue well into next year. 

Bookings for summer 2022 are currently more than 80pc higher than reservations made a year in advance for 2021, according to Guesty, a property management platform. Three quarters were made by Britons in search of a staycation.

Rachel Springall, of Moneyfacts, said it was clear landlords were keen to make the most of holiday let income while it lasted.

“The market is still relatively niche, as there are fewer than 200 mortgage deals available. But, as the demand for staycations remains evident, it would not be too surprising to see more growth in this market in the months to come,” she added. 

A record 1,404 new holiday let companies were set up in England, Scotland and Wales in the first six months of this year, according to Hamptons estate agency, more than 80pc higher than in the entirety of 2020.