Best Places for a Holiday Let Investment

Where are the best places to buy a holiday let in England? We think there are two primary factors to consider when picking a local area to consider: how much an area is a 'holiday hotspot' and rental yields.

To get a handle on these metrics, we dug into data from the ONS, gov.uk and Visit Britain to find 1) which areas are dense with tourists and 2) which areas deliver the best rental returns for your money.

You can read more about how we did this in our methodology section below but, very briefly, first we found the areas that are popular with tourists by looking at:

This data identifies holiday hot spots by finding areas with a lot of visitors compared to housing stock and also where a higher percentage of local people work in holiday-related employment (accommodation and food service). In England, 40 local authorities met these two criteria.

Then, we then ranked these 40 holiday hot spots on their rental yields. Here's what we found.

Best Places to Buy a Holiday Let Investment Property

Of the 40 best 'hot spot' areas for holiday home tourism, Blackpool delivers the highest rental yields at 5.2% (average rent of £550 x 12 / £126,250 average home sale price). In fact, most of the top areas are all located up north, with Allerdale, Scarborough, Northumberland and York boasting rental yields ranging from 3.8% to 3.5%, respectively.

In the southern half of the country, Eastbourne looks like the best bet, ranking #3 with rental yields of 3.6%.

Popular areas in the south west (e.g., Bath, Somerset, Taunton, Mendip, Torbay and Sedgemoor) were not far behind, boasting rental yields around 3.3 - 3.4%.

The top 40 local authorities are shown in the map below—you can click and hover over an area to see its name and the average rental yield.

Below is the data for each of these 40 areas. As you'll see, the 'best' areas in the north also benefit from lower housing costs, so there's less upfront investment required. For example, the median home sale price in Blackpool was £126,250. Compare this to Bath where the median sale price was nearly 3X as much, £360,500.

Probably not a surprise, but Cornwall gets the most visitors with over 15 million holiday nights spent in the area per year. To support these visitors, 15.3% of the local population works in food services and accommodation. Rental yields are a touch lower here, however, at 3.2%.

If you're concerned with occupancy rates, consider the metric of 'Holiday Nights/Stock'. A higher figure here means there are more visitors per house in the area. For this metric, Isles of Scilly ranks best (achieving a whopping 26%), followed by South Lakeland in the North West (7.2%), Scarborough in Yorkshire and The Humber (6.5%), East Lindsey in the East Midlands (6.35%) and North Devon in the South West (5.5%).

What's most important to you in a holiday home? Look through the table to see how areas compare across the different metrics to see which areas jump out at you.

Methodology

To find the areas best for holiday let investments, we took a two-fold look at the data. First, we determined which local areas are holiday and tourist hot spots. We did this by looking at a few sets of data.

To see which areas are popular as tourism destinations, it's a little misleading to only look at the absolute footfall or number of holiday nights because smaller destinations would be left out. To address this issue, we created a ratio of the number of holiday nights over the number of housing units in a local area. This standardised figure allowed us to find which areas are relatively popular for holidays—even if they are smaller outright.

We first ranked the data on this metric, and proceeded with local areas that achieved a ratio of # holiday nights (in thousands) to # properties of at least 1%. This left us with 47 local authorities.

Then we looked at the proportion of people working in accommodation or food services, as this metric is also a good indicator of which areas attract holidaymakers. We considered local areas where at least 9% of the population works in these types of jobs. This reduced our list of eligible areas to 40 local authorities.

From there, we ranked the 40 areas based on median rental yields. For this, we analysed data on median monthly rental prices and median home sale prices in each local area.

Shortcomings

Of course, there are limitations to this type of analysis. For example, rental yields won't be an exact estimate of the yield a holiday home can earn. Holiday homes are likely to earn more per week than a traditional rental unit, but they are unlikely to be rented for the whole year, and some areas might have higher holiday occupancy than others.

Also, we used the ratio of number of holiday nights in an area to the number of housing units to capture how much of a 'holiday hotspot' one area is compared to another. But this metric doesn't capture the proportion of properties in an area currently used for holiday rentals. In an area with a high proportion of holiday rentals already, it may be harder to achieve high occupancy compared to areas with a smaller proportion of holiday homes. This factor could affect yields.