Britain’s holiday rental market

James Gardner, (pictured) owner of Fresh Escapes

Beleaguered property investors are turning their attention from buy-to-let to holiday lets, in a bid to escape the regulatory and taxation changes in the private rented sector. It’s easy to see why. The tapering down of mortgage interest relief, the second-home stamp-duty surcharge and more stringent affordability checks for mortgages mean long-term rental properties are no longer the money-spinner they used to be.

Furnished holiday lets (FHL) or ‘homestays’ as we like to call them, offer many advantages for potential investors. HM Revenue & Customs (HMRC) views holiday homes as businesses, so they are exempt from the mortgage tax-relief changes, and you can put relevant earnings into a pension, allowing you to benefit from tax relief. Owners can also claim capital allowances rather than the wear-and-tear allowance residential landlords receive, as well as capital-gains tax relief.

However, it’s worth being aware that a property must meet certain criteria to qualify as a FHL: it must be furnished; commercially let with a view to making a profit; be available for letting for at least 210 days a year; and let for at least 105 days (you can’t count any days you stay there yourself).

Assuming your property meets HMRC’s criteria, there’s money to be made. UK holiday lets generate an average net yield of 6.1%, compared with residential buy-to-lets at 5%, according to property fund Second Estates. And the average weekly income for a holiday let is £563, nearly three times the typical weekly buy-to-let rent of £191, says the fund.

Britain's holiday rental market is booming as the weak pound is continuing to persuade millions to opt for 'Homestay' holidays.

Many commuters, business professionals and holiday makers much prefer the privacy of using a well-equipped home in privacy rather than sharing spaces with other guests in hotels and bed and breakfast accommodation. Despite wanting to travel more in 2019, roughly a third of British travellers will opt for a homestay as prices for international travel are expected to rise.

In a new survey from the savings website VoucherCodes, 56% of Brits expect the cost of international travel to go up this year as a result of Brexit. The company found that the average cost for a couple to go abroad will be £987.50 (€1097.39), while staying in the UK will only cost £574.10 (€637.99). The fact that staying home is cheaper means that 40% of respondents said they plan to go on multiple trips around the UK, while 34% still expect to make more than one international trip this year.

Despite the potential barriers to travel, 37% aspire to go on more holidays overall in 2019. While cost is a concern, nearly 47% also think that Brexit will make travelling abroad more difficult. About 43% of millennials also say that Brexit will impact how they travel this year, with 25% saying they will cut down on the number of holidays they take. Regardless, that won’t stop them from travelling altogether, as about half (48%) of millennials plan on having more than one international holiday next year, while 43% of Generation X say they will not leave the country.

Did you know that:

1. The UK holiday rental market consists of around 168,000 properties, generated £2.1bn, 55% of which were for an entire property.
2. The All Party Parliamentary Group (APPG) for Tourism, Leisure and the Hospitality Industry has recognised that the sharing economy “provides enormous opportunities for tourism growth in the UK”. According to Airbnb, 5.9 million inbound guests travelled to the UK on the platform in the year to July 2017.
3. 32% of guests said they would not have come to the UK, or stayed as long, if they had not used Airbnb.
4. According to Airbnb, the average guest in the UK spends £147 a day, with 43% of that figure spent in the neighbourhood of the host’s home.
5. The Office of National Statistics estimates that 28% of adults in Great Britain (and 40% of 35 to 44-year olds) used a homestay type accommodation booking service in 2017 such as Airbnb, Booking.com, Homeaway etc.
6. Homestay accommodation is often marketed as fulfilling social or ethical objectives that traditional hotels cannot.
7. In 2016 the average rental income per holiday property reached £22,281 - double the of average of £11,052 for residential properties.

Travel marketing group Sojern has seen searches and bookings for trips within the UK last summer rise by 23.8%. Meanwhile, more tourists than ever before are visiting the UK. VisitBritain figures show 3.7 million came in April 2018, up 19% compared to the same month last year and the highest in April since records began.

At a time when buy-to-let rents are increasing at a 12-month average of 1.12% and the latest ONS inflation figures are at 2.9%, investors are looking further afield for low risk and high yielding assets.