Britain’s beaches and national parks are buzzing. The unpredictable British weather has done little to dissuade an army of visitors to our coasts and countryside this summer. In fact, the drop in Sterling post last summer’s referendum result has provided a mini boom for the holiday rental market and a rise in the popularity of the ‘staycation’.
The ‘Brexit effect’ isn’t the only force at work though. It was estimated that income from UK holiday lets was £3.1bn in 2016 and was forecast to increase by 23% to 2021. With limited housing being built in tourist hotspots due to planning restrictions and local regulation we anticipate a strong macroeconomic backdrop will continue.
The private rental sector is currently estimated at approximately 4.5 million households in the UK out of a total of 23 million. By comparison, the holiday let market is estimated at less than 1 per cent. of the overall market. Although an exact number is difficult to come by (we estimate around 165,000 properties), the market is growing whilst the buy-to-let market stagnates. With an estimated 500,000 buy-to-let properties expected to be sold as a direct result of the recent changes in legislation it’s not surprising that attention is turning to this market.
The rapid growth of booking platforms such as Airbnb and HomeAway has highlighted a sea change in attitudes to short-term rentals. This has had a significant impact on the way in which we book and view accommodation. Traditional holiday hotspots have benefitted and bookings at agencies such as Sykes Cottages have boomed.
So how can you benefit from exposure to this trend? Research by Second Estates has shown that the average holiday let property returns more than double the gross rental income of an equivalent buy to let. Despite this, running costs, booking commissions, cleaning and maintenance can all eat into your returns.
Investing in a beautiful cottage in a popular tourist area will ensure you always have bookings. Rooms should be equally sized, with a large living area and outdoor space, if available. The research shows that hot tubs and open wood fires provide the biggest boost to earnings whilst off-street parking will attract more bookings.
Here are Second Estates’ top ten tips for maximising returns:
Location is everything and local knowledge is key so make sure you do your research on where and what to buy.
Shop around for a good deal but make sure your agency is reputable.
Constitute your second largest cost item so shop around and look for hidden extras that can eat into margins.
Regularly review your pricing and ensure you remain competitive compared with similar properties in the area.
Discount weeks to maximise your bookings, especially in peak periods, as vacant weeks will impact on your returns.
Invest in good quality and durable furniture as the longer it lasts and the better it looks, the less you’ll have to spend on replacements.
Hire a professional photographer as high-quality images of your property will help sell those hard to shift weeks.
Ensure your customers are happy and they’ll provide feedback that can be instrumental in driving extra bookings.
Research has shown that dog-friendly properties, log burning fires and hot tubs all boost the income you can make from your property.
Inject some personality into your property and make it stand out from the crowd.
If your holiday let is available for more than 210 days a year it will be considered a furnished holiday let (FHL) and treated as a small business. This brings several tax advantages for investors.
Business rates exemption
Instead of paying council, tax holiday let owners pay business rates and are entitled to a 100% rates relief if the property has a rateable value of less than £12,000.
Cash invested in furniture, fixtures and fittings can be offset against tax as capital allowances which isn’t possible for buy to let properties.
Mortgage interest is currently tax deductible from rental income at the higher rate rather than the flat rate of 20% applied to buy-to-let properties.
Owners of a FHL are also able to claim entrepreneur’s business property relief from capital gains tax at 10% as well as Rollover Relief if the amount is reinvested in other business property.
Owning a holiday let can be enormously rewarding, however do be prepared for the additional effort compared with a buy-to-let property. The income you generate can be well above those for buy-to-let properties in the same area and usually rises above inflation, providing attractive long-term returns.