Since the lockdown there has been an increased interest in buy to let holiday investments. Landlords are taking advantage of the demand for self-catering UK properties.
Prior to lockdown the ‘staycation’ market was already thriving. According to VisitBritain, in 2019 British residents took 99.1 million overnight trips in England with an expenditure of £19.4 billion – this was +2% higher than the year before.
With the volatility of the stock market, residential property is becoming an attractive alternative for investors. Holiday lets offer additional advantages such as tax savings and greater rental yields. A report from Which? shows that the average holiday let currently earns over 10% yield which compares to 5-7% for other residential lettings.
Is post-lockdown a good time to buy a holiday let?
More and more people are opting to spend their holidays closer to home. Covid-19 fears, travel restrictions, economic hardship, Brexit implications, and environmental concerns about flying are some of the reasons.
Travelling abroad at the moment is a stressful experience. Social distancing on aeroplanes and at airports is a concern, holidays can be cancelled at a moment’s notice, and there is the possibility of having to self-isolate for fourteen days on return. Taking a car journey to self-catering accommodation is an easier, safer, and more attractive option for many people.
Europe is currently the most popular overseas holiday destination for UK travellers, but there is likely to be a decline in the numbers of people crossing the channel. From 1st January 2021 holidays in Europe will become more complex as people need to check the validity of their passports and consider new health insurance and driving rules.
Holiday lets in Britain offer an eco-friendly alternative to flying abroad, especially those constructed with energy-saving in mind.
What are the financial advantages of investing?
Bank of England interest rates are low. The current base rate is 0.1% which means borrowing is relatively cheap. The number of holiday let mortgages available to borrowers is growing as this type of buy to let investment becomes more attractive.
There are tax benefits to holiday let properties that are not available on ordinary buy to let properties. The HMRC classifies holiday lets as a business rather than a buy to let which means landlords may be able to claim for mortgage interest relief. To qualify, the property must be available to let for 210 days or more and let for at least 105 of those days.
Holiday lets may also be eligible to pay business rates rather than council tax which is cheaper, and there might also be capital gains tax and inheritance tax gains. The net income earned from holiday lets qualifies as earnings for pension contributions whereas the earnings from long term buy to lets does not. To find out more about tax benefits see the HMRC HS253 help guide which is available online.
Do holiday lets benefit from the stamp duty land tax holiday?
There is currently a stamp duty land tax holiday in place to stimulate the property market which applies to all purchases completed before 31st March 2021.
Any buyer in England and Northern Ireland – including landlords – will not pay stamp duty land tax on the first £500,000 of a property. Although landlords still have to pay an additional stamp duty surcharge of 3% for properties up to £500,000 and 8% up to £925,000, holiday let buyers could save up to £15,000.
How do I choose the right property?
If you are planning to use the property for your own holidays the first consideration is to choose somewhere you like to visit yourself. Considerable money can be saved by combining your business and offsetting the cost of your holidays.
Location is the most important consideration. You need to buy in an area where there is plenty of demand for holiday accommodation. Cornwall, the Cotswolds, Devon, Dorset, the Isle of Wight, the Lake District, Norfolk, the Peak District, Wales and Yorkshire are particular hotspots. Consider amenities and attractions. Does the property have sea views? Is it located in beautiful countryside? Is it close to pubs, shops and tourist attractions?
Some types of property are easier to let than others. Two or three bedroom properties are a better investment than very small or very large properties, as they can be let to couples, families and groups of friends.
Consider whether a property has private parking and a garden as this all contributes to its appeal. Does the property have fast WiFi? Will you be able to furnish it to a high standard? Holiday renters expect the same standards, or better than they have at home.
Make sure there are no planning restrictions or restrictive covenants in place before you buy. Your residential property solicitor will check this as part of the conveyancing process. It is important to make sure you are permitted to use the property for short term lets. National Park areas may prohibit holiday lets and have local occupancy restrictions in place.
How should I market my property?
You could list your holiday let with websites such as Airbnb.com, HomeAway.co.uk or Booking.com. Alternatively (or as well as this) you could set up your own website and use a mixture of online and offline advertising.
The other option is to go through a holiday property letting company. They will take care of every aspect of your business – administration, marketing, handling changeovers, cleaning and more. However, this is the most expensive way to run a holiday let business. The more you can do yourself the higher the return on your investment.
Are you considering investing in a holiday let?
If you are thinking about investing in a holiday let it is advisable to instruct a conveyancer early on in the process. A conveyancer can advise you about all the legal and practical aspects of purchasing and managing a holiday let.
If the property is going to be let out for the first time, planning permission might be needed for change of use. There might be specific planning restrictions in place that you need to think about before going ahead with the purchase. You will also need to know what the tax implications are and your options regarding specialised holiday let insurance.
A residential property solicitor will ensure you understand all your legal obligations as a landlord, especially those regarding health and safety law. They will make sure that you have a holiday letting agreement in place that reduces the likelihood of disputes and ensures your property remains in good condition after each let.