As we approach the end of another turbulent and volatile year of travel plans – particularly overseas – we took the opportunity to speak with our friends at Graham and Sibbald and Cambridge & Counties Bank to get their take on the state and outlook of the UK holiday let market.

We started by asking Martin Davis Director Hotels and Leisure at Graham and Sibbald – How do you see the current market for UK holiday lets?

National and international lockdowns from the COVID-19 pandemic saw holiday plans cancelled overnight, forcing many holidaymakers to remain in their homes for the majority of the year. This has increased the appeal of holidays for many consumers, looking to make up for lost time and reconnect with family and friends abroad.

According to Mintel, 17% of UK travellers planned to take a holiday of a lifetime once the coronavirus pandemic is over (up from 10% pre-pandemic), 37% of domestic holidaymakers plan to take more staycations when the outbreak is over, 21% of those who typically took short-haul holidays before the pandemic plan to take more holidays in Europe and 30% of UK travellers plan to take a holiday with friends once the coronavirus outbreak is over, whilst 18% plan to take a multigenerational holiday.

Because of the restrictions throughout 2020 and 2021, people are now wanting to take the holiday they have always dreamt of, such as a round-the-world trip. However, due to the ongoing uncertainty about the lifting of international travel restrictions and the recent fears surrounding the OMICRON strain of the virus, staycations have started to feel like a much safer option for those that are keen to get away for a short break with VisitBritain forecasting a 10% rise in visits in 2021 to reach 11.3 million, although this represents just 28% of the 2019 level.

However, as a note of caution it was reported that of the 290 independently owned Best Western hotels in the UK, three-quarters have seen an increase in Christmas cancellations and 89% have expressed concern about the festive trading period. About 70% have seen a decline in bookings since the Omicron variant emerged. – (The Guardian)

Cambridge & Counties Bank added that it’s a potential boom time for the UK holiday letting sector.

The UK has experienced a significant boom in so called staycations over the past few years and the expectation is that demand for UK holidays will remain high even after the world normalises in the wake of Covid-19.

The continued growth of online platforms such as Airbnb and other increasingly sophisticated lettings platforms, are making it ever easier for people to search for and book accommodation. This further boosts the UK holiday sector from both UK nationals but also foreign holidaymakers and travellers.

Several market reports point to a healthy, competitive, and growing market for quality UK holiday property and accommodation.

Cambridge & Counties Bank itself commissioned research among both consumers and finance brokers on the subject to support our dedicated lending product for people looking to buy and invest in the UK holiday lets sector.

Our research, which was run in mid-2020, found that the majority (85%) of people expect to see an increase in their fellow Brits taking domestic, UK-based holidays across 2021 and 2022.

Cornwall (cited by 69%), the Lake District (65%) and Devon (53%) were the top three destinations set to see the biggest increases (see table below).

In terms of the types of properties expected to be the most popular, almost three quarters (71%) said they thought coastal properties will prove to be the most attractive for holidaymakers. This was followed by rural/ countryside properties (67%) and properties in National Parks or similar (47%).

UK staycations boom – top 10 destinations expected to see the greatest rise in UK staycations over the next two years
Location	% of respondents
Cornwall	69%
Lake District	65%
Devon	53%
Peak District	40%
South Coast	40%
Scottish Highlands	35%
Dorset	33%
Cotswolds	30%
South West Wales	26%
Yorkshire	24%

Source: Cambridge & Counties Bank, May 2020

Indeed, as the market has grown and evolved, so too has the breadth, range, and sophistication of assets. There has been an increase in city and town properties, particularly flats, for instance, as people show a preference for self-catered accommodation which offer additional facilities such as cooking, lounges to relax and hot tubs, compared to most hotels.

Likewise, more and more holiday let owners are marketing properties with a link to an activity or theme, such as golf, with a focus on larger properties with, say, 10 beds plus. In many cases this is taking advantage of people no longer willing or keen to go abroad for their golfing holidays.

Given the dynamics driving the market, more investors have entered the sector, with many experienced property investors expanding outside of buy-to-let into holiday lets.

Martin agreed adding “Ultimately, the holiday let model can be a very attractive proposition to operators and investors, given the high profitability that these types of business can generate. The limited requirement for staff and other costs associated with running full service hotels and guest houses are a credible alternative to buyers looking to invest. As demand for this method of holidaying with friends and family becomes more popular, technology and booking platforms will become vital in winning market share to secure high occupancy and rate.

Carl Ashley, Director of North & Scotland at Cambridge & Counties Bank concludes: “We’ve seen strong demand for our Holiday Let lending and expect this to continue given the impact of the pandemic and the renaissance of the UK as a holiday destination.”

We asked Martin about his views on the medium-term outlook

It is likely that although there are many UK people that are keen to travel overseas as soon as it is considered safe, there are many people that have gotten used to the idea of having short UK breaks and it is felt that this is likely to continue. Furthermore, as worldwide travel re starts once again, our inbound tourism market is likely to pick up with more overseas visitors picking up on the more recent occupancy from the British guests that are keen to holiday further afield.

The speed at which the UK holiday market recovers will be heavily dependent upon when and to what extent overseas travel restrictions are fully relaxed. The continuation of enforced testing and quarantine measures remains a significant barrier for many, as well as the potential emergence of new vaccine-resistant strains of COVID-19 such as OMICRON which makes governments more hesitant to allow non-essential travel to or from the affected regions.

When restrictions are relaxed, reconnecting with family and friends will be a key travel and holiday motivation. The vaccine rollouts throughout 2021 have made travellers feel more comfortable about returning to popular or busy holiday destinations, providing optimism for hard hit segments such as cruises, group tours, and city breaks.

Holidaymakers in healthy financial situations will be looking to treat themselves by choosing more luxurious options than they usually do. However, nature-based, leisure and coastal breaks also have high growth potential, with many consumers opting for quieter areas to visit with operators such as Bike & Boot emerging successfully from the long period of lockdown.

Carl added looking forward, the expectation remains that the UK ‘staycation’ sector will grow in importance. The UK is a world-class holiday destination and boasts many excellent coastlines, cities, tourist sites and facilities. After the difficulties of the past two years, it is an exciting time to be investing in the sector for many people.

We also asked the teams why would a holiday let company be well advised to speak to an independent advisers?

Carl stated lenders such as Cambridge & Counties Bank are focused on working with landlords and brokers in helping more people invest in the lettings sector. We look for experienced, passionate, and focused investors active in key locations offering quality assets with a clear business plan. An understanding of the dynamics shaping the sector and how best to optimise buildings is vital to long-term success.

And while holiday lets can generate a higher yield, it is very important to stress there are inherent risks and assets need to be correctly managed and maintained. Location and quality are very important as bad reviews can impact future bookings, and there has also been a growing focus on second-home ownership and the impact on affordability.

As such, talking to independent specialists, including brokers, can be a great place to start – both for experienced investors as well as anyone interested in entering the sector for the first time.

Martin added “There is no doubt that buyers and investors should really do their homework and obtain professional and impartial advice when looking at acquiring any kind of holiday, hotel or B&B business. There are many potential pitfalls and all too often we have seen businesses fail where owners have let their hearts rule their heads. The team at Graham + Sibbald are well placed to provide considerable help and advice from valuation and agency brokerage through to planning, rating and even sustainability advice”

Damian McGann Director at Funding Friends added whilst the market is relatively buoyant it’s still critically important to find the right funding solution with sensible levels of gearing so that any downturns or short term shocks can be managed effectively.

We work with all the major lenders in this space and would be delighted to have a conversation to discuss what options the market currently has to offer.

Contact points

Martin.Davis@g-s.co.uk
Carl.Ashley@ccbank.co.uk
damian@fundingfriends.co.uk