Holiday lets are likely to be an expanding market and now could be a fantastic time to invest. With a great deal of uncertainty in the travel industry over the last few years due to Brexit, the weakened pound, and (unforgettably) a global pandemic, consumers have opted for UK holidays.
The holiday rental marketplace, Snaptrip, reports a huge 284% rise in demand for staycations since April 2021, with tourism becoming the fastest growing industry in Britain, set to be worth over £257 billion by 2025.
Henry Rouse of Habitat Escapes says, “we have seen a sharp increase in the number of owners looking to rent out their properties and a huge 45% increase in the number of consumers looking for holiday rentals on our estates since 2021. We believe that UK destinations will remain part of consumers’ holiday portfolio in the future”.
Affordability and hassle-free travel will ensure that UK holidays will remain a firm favourite for Brits and generate good demand for holiday lets in the future.
Is an investment in holiday rentals a good idea?
Owning a second home as a holiday let can be rewarding personally and financially. With the obvious benefits of escaping city life and connection with loved ones, investment in a holiday rental can generate income, supplement savings in retirement or simply cover the costs of owning a second home.
What could be better than having spectacular scenery, historic market towns and villages, or even award-winning beaches on your doorstep? It is not surprising that a huge motivator for investment in a holiday home is that you can combine a successful business and offset the cost of your holidays.
Deciding on whether to invest requires an understanding of the market, interest rates, mortgages, tax implications and all other influencing factors.
Short-term holiday lets can be much more profitable than longer-term lets, given that you can charge the same for a week’s holiday as you can for a month’s long-term let. The rental yield you can obtain from a holiday let can be up to 30% greater than a standard buy-to-let annual 8% return.
Returns on property sales have been hitting record highs over the last couple of years and years and rising; many investors in holiday lets are using this to strengthen their pension pots for their retirement.
Rory Paxton of Habitat First Group says, “The market for domestic holiday homes is buoyant and has been for some time. Sales are frequently being agreed at full asking price or above and, in some instances, before being launched officially online.”
There can be significant tax benefits of holiday let properties not afforded to buy to let landlords, making a huge difference in profitability. A holiday let is treated as a business for tax purposes, whereas a buy-to-let is regarded as an investment giving rise to investment income. Unlike the latter, owners of holiday lets can deduct the entire cost of their mortgage interest regardless of other income. Holiday lets are subject to business rates rather than council tax.
If your holiday let is available for at least 210 days a year and let out for a minimum of 105 days each year, you are eligible for tax benefits.
Understanding the ever-changing mortgage market is imperative. Some high street lenders may be cautious about lending on a property that has a restriction, or it may be that you cannot live in the property 365 days a year. Specialist mortgage brokers can help find a lender to suit your specific needs. “We meet many customers who understandably try to arrange their own finance but end up in a quagmire of criteria and rules that ultimately mean a “no” from the lender. Just having someone who understands the market and the locations can take the pressure away,” says Sally Hilliker at House and Holiday Home Mortgages.
Holiday lets require ongoing work and management, which can be very demanding. Choosing a trusted and reliable management agency is the key to the success of any holiday let investment. Expert advice and support will make your investment journey painless. Partnering with industry experts like Habitat Escapes, the on-site specialists for Silverlake, Dorset and Lower Mill Estate, can take away all the hassle from property letting by providing a full management service.
Where should you buy? Finding the right area should be based on budget and potential returns. Consider desirable locations (on the coast, market towns, rural hot spots and popular walking destinations) where you would enjoy holidaying yourself. Destinations under 3 hour’s drive from large cities (particularly London) and your own home are best to ensure the property gives good returns and benefits for your family in equal measures.
Run and managed well, a holiday home could provide you with a great deal of pleasure and more significant financial gains and tax advantages than many other investments.