"For those investors who are keen to take on the responsibility of running a holiday let business, it looks like the demand from guests will continue to be strong"
Investors looking to buy now are likely to miss out on much of this year’s demand of course, but it does seem that holidaying in the UK is becoming a more popular trend for reasons beyond Covid-19. Research carried out for holiday insurance company, Schofields Insurance, by YouGov found that 30% of people between the age of 25 and 49 said that would consider swapping a holiday abroad for one in the UK to reduce the impact of travel on the environment, and that many people find staying within the UK to be a less stressful option for their holidays.
With plenty of demand, a holiday let can also prove lucrative for investors. Analysis of properties on Rightmove and using data from Airbnb shows that, in the East Sussex seaside town of Hastings, a one-bedroom flat close to the sea front can cost between £140,000 and £170,000. If let out on an AST, it could earn £625 per calendar month, or £7,500 over the course of a year. However, if a similar property was let on a short-term basis on Airbnb, it could attract an average of £89 per night and have an average occupancy of 81% over the course of the year. Assuming that the property was listed for 25 days each month, to allow for cleaning breaks and maintenance, over the course of a year it could earn more than £21,000 in rental income.
Now, there are obviously more costs and considerations in running a trading holiday let business compared to a more passive buy-to-let investment, and there are more risks regarding occupancy, but for many investors the potential reward still outweighs these risks.
And, as a furnished holiday let is treated as a trading business rather than a passive investment, there are many differences in the way they are taxed compared to buy-to-let. It is always important that your clients take specialist tax advice, but by way of example, investors in a furnished holiday let are able to claim continue to claim full relief on mortgage interest payments in addition to other benefits that are not afforded to buy to let investors.
In order to qualify as a holiday letting, a property needs to be available for lettings 210 days a year and actually let for 105 days a year. Any period where a tenant is in the property for 31 days or more cannot be counted towards this and if the lettings exceeding 31 days cumulatively exceed 151 days, the property cannot be classed as a holiday let.
A furnished holiday let is treated akin to a trading business because it bears the hallmarks of one and so investors should be commercially prepared for the periods of no occupancy, increased costs, and also be willing and able to take on the extra work that can come with this.
For those investors who are keen to take on the responsibility of running a holiday let business, it looks like the demand from guests will continue to be strong and, while lending options were restricted as the market emerged from lockdown earlier in the year, lenders like Castle Trust Bank are continuing to serve this market and provide flexible options to help fund the property purchase and renovations that might be required.
