Short-term holiday lets: what to consider before investing


More property investors are turning to holiday lets with the allure of higher yields and tax advantages. But what should you consider before investing?

In recent years, the UK staycation trend has been growing as more holiday-makers are wanting to stay in private accommodation. Demand for UK staycations is now at an all-time high as lockdown restrictions are easing. And many investors are hoping to take advantage of this.

As restrictions remain uncertain for most international travel with the new traffic light system, many holiday-makers are opting to stay in the UK this year. And after successive lockdowns, many of us are eager for a staycation. This could make it a particularly appealing time to invest in short-term holiday lets.

A recent article from This is Money states investing in a holiday home to rent out could prove to be a “canny investment”. Before taking the plunge and investing, here are a number of factors to consider.

Check for any restrictions

When considering purchasing a property with the intent of renting it out on a temporary basis, investors need to ensure they are able to do so legally and look into how they can get that permission if necessary.

Some councils have certain restrictions in place for Airbnbs and holiday rentals. For example, in London, anyone letting out their property for more than 90 days a year will need to apply for planning permission.

Additionally, some individual tenancy agreements or lease agreements restrict shorter lets across the UK. This is important to check prior to investing to ensure you are able to rent the property out on a short-term basis.

Assess mortgage options

Lenders typically require a specialist holiday let mortgage to let your property out on a short-term basis. Lenders have been returning to the holiday let space to capitalise on the growing demand with the number of products bouncing back to pre-pandemic levels.

Banks and building societies are gaining confidence with the strong demand for staycations this summer. There has also been a rise in investors applying for mortgages for holiday lets. Research by Moneyfacts revealed the number of mortgage deals available for holiday lets doubled between August 2020 and April 2021.

Interest rates for these kinds of properties are higher than mortgages for a regular home. According to Moneyfacts, the average fixed rate was 3.95% in April. Property investors should factor these higher borrowing costs in. An independent mortgage broker can highlight the best deals available for your financial situation.

Consider the added costs, risks and work involved

This type of lets come with added operating costs and more hands-on work compared to traditional buy-to-lets. There will likely be more damages and repairs as there is more people coming and going from the property, especially after weeks of wear and tear during the summer holiday season.

With a higher turnover, marketing and cleaning needs to be done regularly for properties used solely for holidays. Holiday operators can help run these properties to make the investment more hands-off. But the additional agent fees need to be considered before making a decision on investing.

Additionally, there is the added risk that the investor does not have the security of a tenancy contract. The property could lie empty, so any investor needs to ensure they are able to afford extended void periods, especially in the off-season.

The industry is also extremely review-based, so your success will be enhanced with each positive review you receive. And poor reviews can be hugely detrimental. This means a lot needs to go into managing the property and ensuring your customers are happy.

Maximise the potential for higher rental yields

Yields have the potential to be much higher for holiday properties than traditional buy-to-lets. The daily and weekly charge is substantially higher. After a year of lockdowns, some Britons are willing to spend more money on holidays. With the surge in UK staycations, rents for short-term accommodation are on the rise.

On top of that, there are some tax benefits as furnished holiday lets are treated differently than buy-to-let properties. If certain requirements are met, a furnished holiday let is classed by HMRC as a business instead of an investment, like traditional buy-to-lets are.

When letting a property that qualifies as a furnished holiday let, you will be eligible for capital gains tax reliefs for traders. You will also be entitled to capital allowances for items like furniture and fixtures. And for pension purposes, the profits count as earnings.

To qualify for these tax benefits, the property must be available to let for at least 210 days per year. And the property must be officially let out for more than 105 days per year. It’s recommended to receive independent tax advice to ensure you are getting the tax right for your short-term let investment.

With the potential to earn larger profits, the tax advantages and the strong demand for holiday lets, it could prove to be a great time to invest in a temporary let property. While this kind of property investment may not be for every property investor, they come with some major benefits that may help some landlords navigate the changing private rented sector.

Alongside our traditional buy-to-let and build-to-rent investment opportunities at BuyAssociation, we have a number of property investments available on a short-term basis. Get in touch or sign up for free for more information.

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Short-term holiday lets: what to consider before investing


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