Buying a standard rental property and renting it out for vacationers may generate rental income, but from an investment and mortgage point of view, they are two very different propositions.
For landlords considering adding a vacation rental to their existing portfolio, this is important. The potential returns can be attractive, but income is less predictable, operating costs can be higher, and the mortgage must be consistent with how the property will actually be used.
However, despite a series of tax and regulatory changes, there is evidence that investors still see a strong case for vacation rentals.
Cumberland Building Society Vacation Index, Summer 2026 It found that 86% of participants achieved gross rental returns of more than 5%. It also found that 61% felt positive about future returns, while 57% had positive expectations for capital growth.
These figures do not mean that rental property will work in every location or for every owner, but what they do suggest is that for investors who choose the right property and understand how it is managed, the sector can still offer an interesting alternative to standard buy-to-let processes.
What are the returns on vacation rentals?
One benefit of adding vacation rentals to a broader portfolio is that they can provide an alternative source of income.
With a standard buy-to-let scheme, an investor may have a tenant who pays broadly the same rent each month. A vacation break can work very differently. A property in a strong tourist location might cost £3,000 or more during the peak summer month, for example, but generate much less during the winter.
This variation creates risk, but it can also create opportunity, as owners have room to change nightly rates according to demand, and in the right location, strong periods can offset quieter months.
The Cumberland research found that higher returns compared to standard buy-to-let purchases were the most common reason for investing in holiday rentals, chosen by 32% of investors. Diversification of the investment portfolio and growth in demand for short-term rentals were also factors.
For the experienced landlord, this means that a holiday let should not necessarily be seen as an alternative to a traditional buy to let rather it can form one part of a mixed property portfolio.
How do finances work on a holiday let compared to a buy-to-let?
This is where investors need to be careful, as with a traditional buy-to-let mortgage, the lender will typically assess the expected monthly rent that can be achieved from a long-term tenant and test this against the mortgage payment using a rent stress calculation.
Vacation rentals cannot always be valued the same way because income can move significantly during the year.
Therefore, lenders who specialize in holiday letting may take into account expected annual rental income, taking into account high and low seasons.
They may request an income estimate from an experienced local vacation rental agent, especially when the property is being purchased for the first time and there is no current booking history.
Location is also important. A country house in Cornwall, an apartment in a popular town or a property close to a major tourist attraction may have very different booking patterns. Even two similar properties just a few miles apart can produce very different annual income.
Interestingly, this is also reflected in what brokers tell Cumberland they want from their lenders. Income assessments based on short-term rental performance were among the pioneering changes brokers wanted to see, along with more realistic assessments of affordability.
How do you handle personal use of vacation?
Another important difference is personal use. Some investors buy a vacation rental purely as a business, while others want the option of spending a few weeks there themselves or letting family members use it.
This may seem like a small distinction, but lenders can have different rules about personal occupation. Some allow a certain amount of owner use, while other mortgage products may place more stringent restrictions on them.
The important point here is to clarify the intended use before applying for finance, as trying to finance a property as a standard buy-to-let and then using it mainly for short-term holiday bookings could put the borrower outside the terms of the mortgage. Financing should reflect what the investor actually intends to do with the property from day one.
Is there still demand for vacation?
Perhaps the strongest sign that investors still see a vacation spot comes from what they plan to do next.
Cumberland found that 30% of owners intend to purchase another vacation rental within the next 12 months and 25% plan to expand their vacation rental portfolio. Meanwhile, 88% of brokers surveyed said inquiries about vacation rentals have increased compared to the previous year.
Twenty7tec data included in the same report showed there were 3,553 holiday mortgage products available on its system in May 2026, up from 3,111 in January. This indicates that borrower interest and lender choice remain healthy.
Vacation lets you – judge in brief
In conclusion, holiday rentals are not just buy-to-let properties with shorter rental periods. They are valued differently by lenders, and may require more active management and a clear understanding of seasonal income.
But for landlords prepared to engage with them as such, the latest evidence suggests they can still provide attractive returns, another source of rental income and a useful addition to a wider property portfolio.
Hiten Ganatra is the Managing Director of the company Finance insight
