Property investors may be wondering whether holiday lets are still a viable investment now that COVID19 is on the retreat. The short answer is that they are, if you understand the difference between the holiday-let market and the residential-let market. Here, Mark Burns, Director of Pure Investor, shares his insight into what you need to know.
Subscribe To Our Newsletter
The law and staycations
A key point to note is that holiday lets are considered business properties, not residential ones. This means that properties currently designated as residential may need approval for a change of use. These days, local authorities do not just “rubber stamp” these requests. You will need to show that, at a minimum, the proposed change will not cause any harm to the area.
If your property is let for more than 140 days in any given year, you will pay business rate property tax rather than council tax. If your property is offered to let for at least 210 days a year, and actually let for at least 106 days a year, then you may qualify for small business rate relief. In both cases, lets should be for a maximum of 31 days and charged at a fair rate.
The income from holiday lets is taxable. If you own your holiday property directly, then it is taxed as personal income. If you own it through a limited company, then it is taxed as business income. In either case, however, the fact that the property is a business means that you can usually deduct running expenses, including mortgage interest.
Mortgages and staycation property
It is important to note that far fewer lenders offer mortgages on staycation property than on rental property. This makes it particularly important to apply to the right lender in the right way. As with residential property, deposits tend to matter. This is particularly true if you are applying under the banner of a newly formed limited company.
The defining feature of limited companies is that any liabilities rest with the company itself rather than its owners or directors. A newly formed limited company is unlikely to have any meaningful assets. This means that lenders will want to see a significant deposit and/or a personal guarantee.
The benefits of staycation property
Staycation property tends to offer a much higher overall yield than residential property. The keyword to note, however, is “overall”. Income from staycation properties can be very seasonal. This means that there is a higher risk of it being derailed by unpredictable events. On the other hand, the risk of occupants getting into arrears is much lower than in the residential market.
Additionally, staycation property tends to hold its value well. If you wish to resell it, you will often be able to interest both investment and residential buyers. Alternatively, you could use your staycation property as part of a long-term plan to downsize.
The property can earn you an income until you are ready to move into it. You can then reconvert it back to residential use. This is usually very straightforward. You might even still be able to let it out part of the time. Alternatively, you could let out part of the property while you lived on it.
Understanding the market for staycations
There are four main reasons why people opt for staycations. Firstly, there are people who cannot, or do not want, to go abroad. Secondly, there are people who just want a convenient break with minimal travel. Thirdly, there are people who find staycations better value than holidays abroad. Fourthly, there are people who want to lower their carbon footprint.
All four groups are likely to be well-represented in the UK over the long term. The group of people who cannot or will not travel may get smaller over time. On the other side of this, however, there is a strong chance that they will be replaced by people coming to visit the UK.
Location is key
Location is important in any sort of property investment. It takes on a whole new level of importance in the holiday-let market. Everybody needs somewhere to live. This means that any decent rental property has a good chance of being let to somebody. It may not make its owner as high a profit as a property in a better-chosen area. It should, however, pay its way.
By contrast, people have complete freedom of choice over where they go on holiday. There are certain destinations in the UK that essentially market themselves. In England, these include Cornwall and Devon, Yorkshire and Lancashire, the Lake District, Dorset, Hampshire, Essex, East Anglia, and Lincolnshire. Wales and Scotland are also popular.
With that said, the fact that so much of the marketing is done for you means that properties in these areas tend to carry a price premium. In some areas, this can be significant. If you are confident in marketing, therefore, you might want to venture, at least slightly, off the beaten track.
In particular, staycation property in Northern Ireland could be well worth considering. It has been the location of numerous popular films and TV programs. It is also within easy travelling distance of Dublin. This makes it possible to market Northern Ireland as an “add-on” to a holiday in the Republic of Ireland.
What staycationers expect in a property
At a minimum, a staycation property usually needs to offer privacy, decent facilities and a range of entertainment and amenities. There are various staycation properties that actively target people who are keen to experience a simpler and more basic standard of living. These are, however, very niche and even then, there is usually a limit as to how basic you can go.
Pet-friendliness can be a huge selling point especially if your property is in an area that dogs would enjoy. Remember, dog owners often choose staycations precisely because they can take the whole family.
If you really want your property to stand out, however, then you need to offer something unique or, at the very least, unusual. This can be a lot easier than it might sound. All local areas have their own unique history. In fact, that’s part of what makes their local areas. Do some research into it and pick some aspect of it you can use to inspire your property.
Subscribe To Our Newsletter
Millie is a perfectionist with a passion for property and writing articles. You’ll find her researching the latest housing trends and the newest up and coming areas worth investing in. Read more about Millie here.