As the weather gets warmer and the nights draw lighter, investors may be wondering – are UK holiday lets a good investment? Or is buy-to-let the best route?
There are plenty of advantages and disadvantages to consider when purchasing a holiday home. In this article, we discuss the benefits and the risks of a holiday let investment and why buy-to-let could be a better option as another summer season quickly approaches.
The benefits of investing in a holiday let
Demand is growing
Since Covid-19 changed the way we worked, lived and vacationed, staycations are still on the rise, as people wish to avoid the dreaded restrictions and additional costs when travelling abroad. Despite international travel being amid its revival, 39% of Brits are opting for a staycation in the UK post-pandemic, so investing in a holiday let could be the next step in growing your portfolio.
When investing in property, it’s important to consider taxation rates and this can differ depending on each individual’s circumstance. You could end up benefitting from securing a holiday let, as there are many tax benefits of holiday let properties which regular buy-to-let landlords are unable to obtain. HMRC considers holiday lets to be a business rather than a typical buy-to-let investment, allowing the possibility of claiming full mortgage interest tax relief rather than the limited allowance most landlords will receive.
To qualify, your property must be a furnished holiday let and available to book for at least 210 days a year, and at least 105 official bookings taken. Claims include any general running expenses of the property such as maintenance fees and bills. You can find out more about tax on holiday lets on the government website.
Limited risk of problem tenants
Occupancy rights for holiday lets are different to shorthold tenancies. The risk of tenants overstaying their welcome to the point of eviction is less likely. Holiday let tenants also pay ahead of time, so you can rest assured that you will receive payment before their stay. You can also enjoy the holiday let for yourself and take advantage of a free vacation, but keep in mind that this will take away the opportunity for profit.
The disadvantages of investing in a holiday let
While the benefits are advantageous, it’s important to consider the disadvantages before you invest in a holiday let.
The initial cost
Holiday lets often cost more to purchase because most of them are located in desirable areas and are a popular choice for a second home or place to let. While the tax benefits are a huge benefit, you should still expect to pay a lot more for a property in a holiday location than a regular property in the city.
Limited mortgage options
Investing in a holiday home can be arduous, as standard residential mortgages are not available when purchasing a holiday let. Many buy-to-let mortgages will only allow lettings on an assured shorthold tenancy. Mortgages for holiday lets may only offer a lower loan to value ratio and charge a higher interest rate.
Cost of repairs and utilities
Every property will present wear and tear, but holiday lets will be home to different tenants almost every week of the year. The risk of wear and tear is much higher than a standard property let and you need to consider the costs behind keeping a holiday let up to scratch.
Utility bills in residential lets are covered by tenants, whereas the landlord is responsible for all utility bills and council tax in a holiday let.
While many of us flock to the seaside during the summer months, it is less likely that people will book holidays in the crisp sea air during the winter months. Making a profit is easy on bank holidays and during the school half terms, but it is important to consider that your property may be empty during the winter or less busy periods.
How to make your holiday let investment a success
Making a holiday property investment is a huge step for any investor, but there are ways you can guarantee some success.
- Location is essential. Choosing the right location could make or break your investment. Bookings are subject to popularity in the summer months, but only if you are in an area where people are looking to vacation. Look at hotspots like Devon, the Cotswolds, Wales, Cornwall and the Lake District, but remember that city breaks, along with the rise in Airbnb’s across cities in the UK, are becoming just as popular.
- Consider what type of property is the perfect holiday let. People often holiday as a family, a group of friends or as a couple, and properties with two-four bedrooms will meet the needs of most groups. Any smaller or larger properties may suffer in the market due to considerations such as less space and higher costs.
- Keep your holiday let to a high standard. No one wants to relax in an outdated property with limited amenities. Investing in your property means creating a well-furnished, fully equipped space with everything you need: WiFi, television, kitchen equipment and even more exciting features such as games or a hot tub.
Is buy-to-let a better option?
As a first time investor, we would advise a more stable solution such as buy-to-let rather than a holiday let. Here are some of the benefits of investing in a buy-to-let property instead.
Consistency and stability
Buy-to-let offers stability for at least 6-12 months with each tenant. Once you have secured them, you can expect to potentially produce high returns all year round by only having to find one or two tenants to live there over a 12 month period.
Buy-to-let offers great stability because you will receive a consistent monthly income with predictable expenses. Holiday lets come with the risk of hidden costs and maintenance fees more regularly than buy-to-let due to the high number of tenants using the property.
Upkeep is at a minimum
When managing buy-to-let properties, the level of upkeep is far lower than a holiday let, particularly for new-build properties. Most developments have block management and lettings companies already in place to manage the development, allowing you to be a ‘hands-off’ landlord. This takes away the stress of having to over-communicate with new tenants every week, allowing you to focus on other investments.
After a tenant signs the lease, you will have peace of mind that they are staying for however long you decide, taking away the worry of finding new tenants too soon. In a holiday let, especially during the winter months, you risk losing profit if you don’t find enough tenants to book.
You can also charge a high-security deposit in case of any damage which you can deduct appropriately. This is something often more difficult to arrange with holiday lets.
Which is the best option for you?
There are many advantages and disadvantages to both holiday lets and residential buy-to-lets, it all depends on what you want to achieve from your investment. If you are an investor with limited time on your hands, holiday lets are probably not the best option for you – since they require a lot of attention and involvement when it comes to regular changeovers and cleaning duties.
In the North East, the rental market continues to flourish. Average rent prices have increased to £718pcm and continue to rise as we get further into 2022. In addition to this, the yield for landlords has hit an astonishing 7.9%, making buy-to-let an incredibly stable way of making an income and growing your portfolio.
Buy-to-let investment options
Top buy-to-let destinations such as Liverpool, Manchester, Bradford and Sheffield all provide great opportunities to invest, making now a better time than ever to make a move. Whether you have a query about a specific development or are looking for more general information about Knight Knox or the buy-to-let process as a first-time investor, we can help. Get in touch with us today to find out more.