Staycation boom is coming

What is the one investment opportunity that is sometimes overlooked?

AS LOCKDOWN RESTRICTIONS have been lifted, UK staycations are undergoing another boom.

Due to the coronavirus (COVID-19) pandemic, a surge in bookings for short-term holiday lets is forecast. After being advised to stay at home, many of us are looking forward to getting away. More and more landlords are buying property specifically for holiday lets. Holiday lets are a small market, but one that is expanding quickly.

STRICTER RULES

The tapering of mortgage interest relief, second-home stamp duty surcharge and more stringent affordability checks have all dented the profitability of buy-to-let investments. Regulatory changes regarding everything from letting fees and tenant deposits to licensing and minimum space requirements have had the same effect. Airbnb, meanwhile, used to offer lucrative short-term lets but users are facing stricter rules to do with tax, compliance with local laws and mortgage terms and conditions.

TAX ADVANTAGES

By comparison with buy-to-let, furnished holiday lets (FHL) offer many advantages for potential investors. HM Revenue & Customs views holiday homes as small businesses, making them liable to pay business rates instead of council tax. But the current tax loophole enables many to avoid paying. This is because owners are entitled to relief on 100% of the business rates payable if their properties have a rateable value of less than £12,000.

RATEABLE VALUE

For properties with a rateable value of £12,001 to £15,000, the rate of relief will go down gradually from 100% to 0%. For example, if your rateable value is £13,500, you’ll get 50% of your bill. If your rateable value is £14,000, you’ll get 33% of. The level of financial return on any property will depend on several factors, such as the initial amount invested in the property, the location and market demand.

“More and more landlords are buying property specifically for holiday lets.”

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If you are thinking of investing in a property for a furnished holiday let, here are some of the main things you need to consider:

COSTS

Will your incomings cover your outgoings and provide an income? It’s vital to ensure the income from letting your property covers your outgoings. Example costs include accounting, legal advice, valuation, VAT, cleaning, repairs, utilities, insurance and monthly mortgage payments. Do you have any contingency savings or disposable monthly income should you need to support the business in leaner times?

FINANCE

Typically, lenders for holiday let mortgages require a minimum of 25% deposit. Consider how you will raise the required capital along with the additional costs outlined above.

MARKET

Do your research. If your chosen location is popular for a specific type of staycationer, that’s a good foundation for starting your business. Equally, check what local amenities and facilities there are, as this will help you to market your property.

COMPETITION

Identify the local competition and their strengths and weaknesses, price points and features. Perhaps even book an overnight stay to gain a thorough understanding of how you might differentiate yourself.

MANAGEMENT

There are advantages and disadvantages of working with an agency to manage the property. For example, an agency can free up your time as your bookings are managed by them. They can also help with your marketing. However, agency fees will add to your ongoing costs.

PLANNING

What are your business goals? A simple SWOT (strengths, weaknesses, opportunities and threats) analysis can be a helpful tool to help you to plan your approach, and to think about contingency planning to deal with any potential threats. You could ask yourself questions like: What opportunities are there in the market, or with a particular property? Can I foresee any threats to the investment, and what can I do to help mitigate these?

BULLETPROOF

Holiday let owners will tell you the significant impact COVID-19 has had on their business, and while the British staycation market looks as though it will flourish as lockdowns are lifted, there were some challenging times they had to overcome first. As such, will you be in a position to bulletproof the business and activate robust contingency plans for quieter seasons of the year, or should the UK enter another lockdown, for example?

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>> BUYING A HOLIDAY LET INVESTMENT PROPERTY? <<

If you are interested in investing in holiday lets, then we can help you find the right mortgage deal. To see how we could help, contact us– UK +44 (0) 203 883 1017 Hong Kong +852 6017 4140 – email info@cedar-crest.co.uk.

Your home may be repossessed if you do not keep up repayments on your mortgage.