Icelandic saga – stunning scenery comes at a cost

Our personal finance editor, Julian Knight, finds that this island is no place for bargain hunters

I have always wanted to go to Iceland but have been put off by the expense. Not how much it costs to get there – flights are usually a modest £200 – but the cost of enjoying myself once I'm there.

I'd heard horror stories of the £10 sandwich, £40 main course and, worst of all, the £6 pint of beer. But, late last year, when the Icelandic banking system went pop spectacularly, along with the currency, the country was being touted as a cheap destination. The tourist board was quick to cotton on that one of the island's biggest black marks – the expense – had suddenly become a bit of a selling point.

Iceland was suddenly being sold as "half-price land". But was this really true? Was it now possible to enjoy Iceland without fear that the credit card statement would land with a thud rather than a flutter on my return?

Sadly not. Anyone thinking that Iceland is now a super-cheap destination will soon be disappointed. Realistically, you can't expect it any other way as the island has to import most of what it eats. A coffee in Mokka on Skolavordustigur street – one of Reykjavik's oldest cafés – costs £2.50, accompanied by a bland cheese and ham toastie – served with a vat of mustard – that sets me back £4. A lunchtime meal for two with a couple of glasses of wine in one of the numerous trendy city-centre restaurants costs around £40 to £50. As for an evening meal for two at Vox, rated one of the best places to eat in Reykjavik, don't expect much change out of £120 with wine. And for the ultimate currency test, the pint of beer, you can expect to fork out close to £4. Iceland is a long way from being a bargain basement; when it comes to price it's more big British city.

Hotel rooms are only a little cheaper than they once were as tourist numbers, bolstered by promises of cheap deals, have held up after the banking collapse. Part of the reason is that a sizeable chunk of Iceland's hotel and leisure industry started charging in euros either just before or after last autumn's economic crisis. Take the iconic Blue Lagoon, the spa where the waters are heated by Iceland's permanently raucous volcanic activity. Entry into the spa is €20 per person, and that's before you've even hired a dressing gown or bought refreshments.

As for purchases, designer shopping on Laugavegur street is a little cheaper than, say, New Bond Street and the sales seem permanently to be on. The shops, however, remain empty even around Saturday lunchtime. If you want to hunt for a true bargain, follow the locals to the Kolaportid flea market on Geirsgata, across from the harbour, packed with everything from dried fish to the warmest winter coats you'll ever see.

But it takes more than a harsh climate, economic or otherwise, to keep an Icelander down. I head out on a Saturday night, in the midst of a blizzard ("a bit of sleet" in local terms), and the capital is packed with late drinkers looking to take full advantage of the bars, which stay open until 5am. They now have a phrase in Iceland for any act of extravagance: it's called partying like it's 2007, before the "banksters", as they call them, screwed it up for everyone. Big names from Iceland's financial sector were sponsors of Iceland's renowned music and arts festivals, but the city insists that they will go on regardless.

But really you don't go to Iceland to see a once-bright economic star burning up, or even for the guaranteed late drink. It's the scenery, and when you get out of Reykjavik you'll quickly realise that, minus the cost of a car, the best things on the island are free. Even weekend visitors would do well to drive for the hour or so that it takes to get to the famous "Golden Circle" route to see some of Europe's most spectacular and downright strange natural phenomena – anything from the stunning, bluer-than-blue crater lake at Kerid, to the awe-inspiring Gullfoss waterfalls or the spectacular geysers.

A little further afield you can see the settings for some of the Icelandic sagas with a circular drive in the shadow of the Mount Hekla volcano, taking in eerie rock formations and the picturesque Seljalandfoss waterfall on the way. Then there are the Northern Lights which can punch through the skies of Iceland for nearly nine months of the year, and the good news is that we are about to enter a high period of solar activity (which causes the lights) lasting until 2014.

So, don't come to Iceland expecting a dirt-cheap break. But the stunning scenery in this remote outpost of Europe is still well worth it.

Compact Facts

How to get there

Discover the World (01737 218800; discover-the-world.co.uk) offers the four-night, self-drive, Iceland Golden Circle Explorer from £500 per person, including accommodation with breakfast, return flights from London to Reykjavik and car rental.

Further information

Icelandic Tourist Board (020-7259 3999; visiticeland.com)

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