Autumn approaches, marking the end of a busy summer for holiday let landlords. This year, we’re seeing increased interest from property investors seeking insights into the holiday let sector and considering their next steps.
Whatever questions you may have, here’s a quick overview of what’s going on in the market and a review as to which events investors should be looking out for.
First, an overview. New figures from Stripe Property Group set the scene well.
In 2021, the group’s figures show the holiday let market dipping by 24 per cent. The sector rebounded by 21 per cent in 2022. This means that the market size is now £2.54bn compared to £1.8bn in 2013. Stripe believes it will grow by a further four per cent in 2023.
However, while the buy-to-let (BTL) market – from which many holiday let investors either take part in too or have come from – is grappling with the prospect of new rules on energy performance certificates, holiday let investors must consider their own set of regulatory challenges.
The media recently reported that the government has proposed new laws that will give local authorities the power to raise the amount of council tax levied against second homes – including holiday lets. It says that, so far, 26 per cent of councils have voted in favour of this, potentially raising the bills for over 100,000 second houses.
This comes not long after the Welsh government introduced a council tax premium on second homes of up to 300 per cent if a property is not occupied for at least 182 days of the year.
And last October, the Scottish government passed a law requiring landlords to hold a short-term letting licence. The deadline for applications has been extended until October this year.
This echoes the UK government’s recently closed consultation on new laws that would see existing homes requiring planning permission to be used as a short term let – “to give communities greater control over short-term lets in tourist hot spots”.
The same consultation also asks about giving owners flexibility to let out their home without planning permission, as long as the property in question comprises the owner’s main home (alongside a host of other conditions).
Although the BTL market is going through difficulties stemming from increased finance costs and tightening interest coverage ratio requirements, we have seen some people exit the holiday let sector and move into BTL because of the various tax and other regulatory changes detailed above.
As a broker supporting many customers with holiday lets, we often discuss these issues in depth, plus we always press home just how different being an investor in the two markets can be – and not only in terms of taxes and regulations.
For example, the values and expectations of a long-term tenant and a short-term tenant will differ greatly. With the former, the focus for the landlord will be managing the property itself in order to provide a safe and stable home. With holiday lets, however, investors take on the role of hotel manager too, dealing with bookings, check-ins and check-outs, cleaning and keeping the property up to date with amenities like Wi-Fi and hot tubs.
Holiday lets benefit from a favourable tax treatment compared to BTL and because of this and other reasons, the profit margins can be significantly higher. But every penny of this is earned in making multiple guests a year feel welcome and comfortable.