As the property market was spiralling downwards before Christmas 2008, a remarkable thing happened. A rundown, end of terrace cottage with no garden sold for a reputed £600,000. That would have been a miracle, had the property not been in Cornwall, overlooking the River Fowey as it races into the sea. Anyone unfamiliar with the holiday lettings market might still have thought the buyer had more money than sense. However, the modernised cottage at the other end of that terrace commands £1,400 a week at the height of the holiday season, is almost always fully booked and even in the dark, chilly days of November pulls in a healthy £425 a week.

No wonder the holiday home market still looks like a good bet. Homeowners who let the properties have been able to claim a generous raft of allowances against tax, a fact which has not gone unnoticed by a Government desperate to claw in every penny it can to fill a bottomless black hole in the Treasury. The next budget is widely expected to hit holiday home owners hard, although is too early to predict how many may decide it’s not worth the candle and sell up. Any departures may well be greeted with delight in areas which have seen property prices rise beyond the reach of the locals, or suffer from falling school numbers thanks to a seasonal, non resident population. However, at present, the returns easily outperform most conventional investments.

Even in areas less showy than Cornwall, holiday homeowners have done well. On Hayling Island, Hampshire, an owner can gross £10,000 a year on a £160,000 seafront flat, says Roy Pine, Managing Director of Millers. The firm began more than 60 years ago as a holiday letting agency, but gradually developed into sales, regular letting and holiday letting.

“Back then we had 90 self catering properties on the books and we weren’t the only people in the business,” says Pine. “Hayling was known as Reading by the Sea, as this was the nearest thing to a beach for the Thames Valley. There used to be six holiday camps, now there are three and they are adults-only. We are down to a dozen properties, which will be interesting next summer when the Laser World Sailing Championships are being held, as they have 600 entries and they will all have to stay somewhere.”

A holiday letting on Hayling in summer can pull in £600 a week, as opposed to a regular long let which gets that amount in a month. However, says Pine, there is no demand for holiday lets on Hayling in the winter, unlike other more high profile tourist areas which peak again at Christmas and New Year.

“The optimum letting unit is a two- bedroom flat with a sea view,” says Pine. “The trick is to spend the least money to get the best results. So you would be better off buying two flats at £150,000 each, than a £300,000 house, because you will get a higher return. However, they would have to be of a high standard. That is what people expect these days.”

Some residential estate agencies new to holiday letting management have found diversifying has added value to the business. People who have come to rent for a holiday have enjoyed the area enough to actually buy there, through the same agent.

Guy Leonard & Co. in West Sussex is a long established residential agency, but launched a sister company, Amberley House Cottage Holidays last June. Headed up by Andrew Gardner who moved over from the financial services sector, it is filling a gap in the market on the South Downs. Although national holiday cottage firms do have properties in the area, few have people on the ground with local knowledge. “I was born in the county,” says Gardner. “I can explain about the area to people who call and we give the personal touch. Also a lot of holiday home owners get tied into contracts with big holiday lettings companies and get charged a lot of money. We are smaller and can be competitive, the owners can use the properties on their terms.”

The firm currently has 28 properties on its books, ranging from a Georgian townhouse in Arundel to a studio cottage next to a farmhouse, surrounded by a moat. When they carried out a survey, they found their ideal holiday home renters were the kind of people who read the Telegraph and Sunday Times, and also magazines produced by the RSPB, the National Trust and Waitrose. The company will, says Gardner, be trying to reach different markets too.

“We are looking for charming properties and want to present a certain quality,” he says. “I feel very bullish about its success.”

CFP, the Cornish-based market leaders in software, produce a special holiday lettings programme, a boon for for firms as well as individual owners.

Peter Everett, General Manager explains, “It is a niche market but we have a large market share,” he says. “We have developed the product over 10 years, it is compliant with organisations including ARLA and RICS, and it is used by several hundred customers. Although our system is used by the residential lettings market as a whole, the accountancy side of it is one of its great strengths for individuals and smaller companies.

“Overseas investors, who own a cottage in the UK which they let out, find it especially useful, as the software calculates the rentals and the liability to the Inland Revenue. If you fall foul of the tax laws, you could be in serious trouble. Of course, the system is also used to track bookings and operate a diary system. It works for everybody whether they have only three or four properties, or one of the larger customers managing a sophisticated portfolio of hundreds.”

Since CFP first started, the holiday lettings market has become much more professional, so even owners running a one-man show have to meet the expectations of renters used to an efficient, quick online response.

Rightmove, which also operates holidaylettings.co.uk reports the holiday lettings market has proven buoyant through challenging economic times.

“There are two beneficiaries – the homeowners and the holidaymakers,” says their spokeswoman. “Increasingly, long standing second home owners are realising the intrinsic value lying in a home they use as a little as four weeks of the year. It is many of these type of people who have turned to letting their homes in recent months.

“Their guests are also growing in numbers as people realise that renting a private holiday home incurs no middle man costs, is cheaper per person, offers more space for the group with individual bedrooms and private communal space, not to mention the lack of interruptions from chambermaids or restricted meal times.” Rightmove says that demand for private holiday home rentals is up 40 per cent year on year, with UK enquiries in popular areas up 95 per cent.

Claire Stanton, Area Manager for Fulfords holidays cottage lettings business in the South Hams, Devon, says 2009 has been one of their best years since they started 28 years ago.

“It’s all down to ‘staycations’,” she says. “People like to know what they are getting and how much they can buy for their pound. The exchange rate against the Euro is so bad, the summer weeks were booked up really early.

“We are also finding that people who have come on holiday for a number of years are buying. Grandparents like to bring their families to a home from home, with a beach on the doorstep. This area is generally mild in winter and more people are coming for Christmas.”

Fulfords have around 100 properties on their holiday lettings books, ranging from a studio flat at £300 a week to a £3,000 a week house sleeping eight, overlooking the ocean at Salcombe.

“We like to cater for everyone,” says Claire. “People do pay the price to come to the South Hams and those from London don’t find it too expensive.”

Estate agents and holiday lettings agents Cole Rayment & White are also in prime vacation territory, covering Padstow, Rock, Camelford and Wadebridge in Cornwall. Old hands at the holiday lettings business, they report 2009 has been their best year ever. “It may have been something to do with the Press reports of a hot summer,” says Domenique Bray, “but the area is getting more popular every year. We have also seen 75 per cent more overseas visitors, from France and Germany. They way the Euro is, they are getting a lot more here in the UK. I’m now working on repeat bookings for 2010, and they are up.”

The Rick Stein and Jamie Oliver effect has boosted the holiday lettings market in Padstow, but high end shops like Crew and Quba also draw their share of visitors who make a significant contribution to the local economy.

“The area is becoming a 12-month resort,” reports Domenique. “Sales of property to investors is also going well, especially in the mid price range, from £300,000-£500,000. People are not putting their money into banks because they get a higher yield from holiday lettings. We have a house for sale at the moment for £449,000, but it is also letting at £1,000 a week. Of course, there are outgoings, and in March a new ruling comes in which stops owners being able to claim VAT on improvements. But I still have my fingers crossed for a bumper 2010.”

A similar upbeat story emerges from Keys Estate Agency and their holiday lettings arm, Keys-Holidays, in Sheringham, Norfolk.

"We have been doing this for 30 years, but 2009 has been fantastic,” says Partner Clive Hedges. “Without a shadow of a doubt, it has helped the estate agency side through a difficult year. We have sold to a number of people who have previously been here on holiday. We have taken on another 16 holiday properties and now have around 70, from a brick and flint cottage 1-bedroom cottage at £250 a week to a £1,300 a week house sleeping eight.”

Investors, too, are on the increase, buying properties up to £175,000 which produce a good yield compared to pitiful bank interest, and hopefully, also attract capital growth.

“People are not going abroad,” says Clive Hedges. “We have a Blue Flag beach, a beautiful unspoiled town, perfect for the traditional family holiday.

“Sheringham never dies in winter. We are always busy and on a Saturday we are the only agency in town with a queue outside, when people come to collect their holiday cottage keys!”