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UK holiday let market creating opportunities for investors

UK: Thousands of Britons are opting to spend their holidays closer to home and as a result, holiday let property investors are seeing the potential business opportunities this presents.

That was the opinion of Commercial Trust Limited chief executive Andrew Turner, speaking to Property Reporter, in which he said the holiday and short-term lettings market would experience “significant” growth in 2019.

Last year, estate agent Savills analysed data which revealed 39 per cent of the British public who purchased holiday lets in 2018 opted for staycations in domestic UK properties. That contrasts starkly with the figure of 14 per cent, which was recorded to the economic recession in 2017.

Meanwhile last month, Cottages.com reported a 23 per cent rise in listings in its holiday property portfolio in the space of 12 months.

Turner’s findings included the following:

Market demand
Thousands of Britons are choosing to staycation domestically due to reasons such as Brexit and the resultant economic and passport and customs uncertainty. Tourists are still coming over to visit the UK from abroad and coupled with the weaker pound, it is leading to a larger pool of people looking for short-term letting options when travelling.

Differences in tax
Government changes to buy to let have gradually restricted the amount of mortgage interest tax relief that landlords can claim. By April 2021, landlords will be able to claim a flat level of 20 per cent as a tax credit, unlike in the past when they could previously claim 100 per cent of mortgage interest.

For furnished holiday lets, landlords can still claim all of the interest paid, as well as capital allowances on wear and tear and furniture replacement, while also potentially qualifying for capital gains tax relief as a business.

According to HMRC rules, a property must be available to let for at least 210 days a year and it must be let for at least 105 days in order to qualify for mortgage tax relief.

According to Turner, many landlords now seemingly use properties as a savings vehicle for their future pensions.

Yields
Yields on holiday lets can outperform more traditional forms of buy to let.

2018 statistics from holiday property fund Second Estates showed landlords with holiday homes in Wales were able to achieve yields of 11.7 per cent over a 12-month period.

Yields are dependent on several factors, including property value, the going rate for rent and the number of bookings or demand in the area. Second Estates predicted a further rise for holiday let yields in the coming years.

From 2018 to 2022, the holiday property fund said it envisaged an average 14 per cent return across the UK, with the North West and East of England expecting to achieve returns of around 16 per cent.

Turner summarised by saying that the holiday lets market is thriving and will continue to attract keen interest from property investors. Circumstances with uncertainty over Brexit have created a market for buy to let landlords to look for further entrepreneurial ways to generate and maintain a profit.

He also advised anyone who is considering re-mortgaging and operating a holiday let to speak with a specialist first to fully comprehend the implications of costs.

By Paul Stevens

Source: Short Term Rentalz