The popularity of short-term letting sites like Airbnb has soared in recent years, and investors are using the changing trends to their advantage.
British holiday habits are changing. Two thirds of people surveyed in a recent report by Skye Holiday Cottages holidayed in the UK last year, which was a 10% increase from the previous year. While the number of people going abroad for holidays saw a huge boom over the last couple of decades as flights became more affordable and package holidays attracted more families, it seems staycations are once again growing in popularity.
One driver behind the change could be the rise of environmental awareness and responsibility, as travel abroad is now acknowledged as a major contributor to carbon emissions. According to the survey, 33% of people want to be greener, while 20% intend to book more sustainable holidays in the future.
Healthy returns through holiday lets
While buy-to-let investment is still far ahead of the short-term letting market in terms of income security, regulation and investment figures, the less traditional approach to renting has been gaining traction among investors and homeowners alike, with sites like Airbnb allowing people to make extra cash through letting out their spare room.
According to the report, the average annual gross income of UK holiday let property owned by Skye customers was £20,000 last year, which is £2,000 higher than in 2017. While this may not be a reflection of the whole short-term rental market, which will include people who just let out rooms in their homes, for example, the positive trajectory demonstrates how the market is expanding.
Where are the opportunities?
As attitudes towards staycations change, alongside other factors such as people looking for short-term accommodation in between house moves, there is more opportunity to invest, and the rental income can in some cases be higher than for long-term lets. There is also a growing mortgage market for this type of rental property, although some lenders are still yet to catch up with the changes.
Liverpool was recently named as the highest yielding place for short-term lets, with yields reaching 27.2% based on an occupancy rate of 50% of the year – around double the rental yields achieved through long-term lets. Across the north-west, there are 10,200 active listings on Airbnb, a huge surge over the past few years, with Manchester a key city for the short-term let market, as well as the surrounding rural areas.
The tourist industry in London is also arguably one of the strongest in the country, with thousands flocking there every week for mini breaks, and the short-term let market there continues to expand. Airbnb is a popular choice in the city, with 80,000 individual listings there according to data from Inside Airbnb.
Beware of the rules
However, it is important to note that this style of investment is not without its pitfalls. The higher turnover of tenants compared to long-term rentals could increase the risk of damage, as well as the additional costs of cleaning between each stay, replacing broken items, wear and tear costs, and management costs where a company is employed to deal with tenant changeovers.
When investing in a property, it is important to find out about the local area’s rules on Airbnb and short-term lets, as some councils have restrictions in place. In London, there is a 90-day per year limit to the number of holiday let days a property can be used for without having to apply for planning permission to use an entire house or flat for short-term lets. If your property is leasehold, there may also be terms in the lease that prevent or restrict this type of letting, while if you live in a rental property, subletting a room is normally not allowed.
Read more about the comparison between Airbnb and traditional buy-to-lets here.