The outdoors is somewhere we’ve all wanted to spend more time recently and with the promise of warmer months...
If you’re thinking of buying a holiday property, now could be a fantastic time to generate a sound financial return on your investment. Here’s everything you need to consider when asking are holiday lets a good investment?
The past few years have seen an enormous growth in self-catering holidays within the UK, and following the initial news of Covid-19, holidaymakers are swapping trips abroad for UK staycations, leading to a particular increase in demand for self-catering accommodation in the last 12 months. This flourishing market, together with other contributing factors, have created an ideal environment for positive potential letting income and revenue. For those thinking of buying a holiday let, you could experience a lucrative return on investment.
Owning a holiday let can be financially rewarding and an overall fantastic endeavour, but it will only be profitable if you treat it like you would any other successful business. Making the decision on whether to invest in a holiday cottage to let requires careful consideration, and understanding of the the market, interest rates and all the other influencing factors.
The staycation market has been increasing for some years now. Sykes Cottages reported that In 2018, 66% of the population opted for a staycation (up 56% from 2017), and in 2019 Brits planned to take an average of three UK holidays. In fact, 2019 was record breaking for Coast & Country Cottages, with bookings that rocketed a massive 46% up year on year.
Since then, following the news of Covid-19, demand for self-catering staycations has positively boomed at an unprecedented rate, as Brits have shifted from travelling abroad to getaways closer to home that feel safer and are less costly.
Google Trends identify that in the 12 months prior to February 2021, searches for ‘staycation ideas’ grew by more than 200% compared to the previous time period. But that’s not all, following the latest government announcement on Monday 22nd February 2021, at Coast & Country Cottages we experienced record-high booking levels for self-catering stays in South Devon. With the staycation trend looking to continue, this could be the ideal time to invest in a holiday let.
Short-term holiday lets tend to be more lucrative compared to long-term rentals. The weekly rate charged for holiday lets are significantly higher, which increases earnings.
While it’s worth being aware that owning a furnished holiday let will incur more expenses on taxes, utility costs, property management fees or general maintenance, the gross revenue per annum is a lot higher.
The biggest motivator for investing in a holiday let is that you can combine owning your dream holiday home with running a successful business and offsetting the cost of your own holidays.
We recommend that if you are thinking of buying a property, you choose somewhere you would like to holiday yourself. With our beautiful countryside, breathtaking coast and lively towns, there are plenty of fantastic locations to choose from in Devon.
Letting your property as a furnished holiday let permits numerous advantages, as it is considered a trade rather than an investment. Benefit from offsetting mortgage interest costs against your revenue, as well as reconciling council tax and other bills against your income.
For a comprehensive look into what costs you can offset against your holiday let, visit the HMRC HS253 help guide for more information.
For a more in-depth look at what to expect, read our blog on how to start a holiday let business.
First and foremost, your holiday home should be somewhere you love to spend time and not just a source of potential letting income. Location and type of property will be a key factor in your success, and will dictate the amount you can charge and the ultimate return on your investment.
Here in the South West there are a huge variety of beautiful properties in spectacular locations to choose from, read our blog on where to buy a home in South Devon for an insight into what to consider when looking to buy a holiday home.
If you are considering buying a holiday home as an investment, there are a number of ‘hidden costs’ which should be factored in before you make your purchase.
Stamp duty can be an unforeseen charge which can add thousands to the cost of a buying a property. It is a tax levied on the sale price of a residential property that cost more than £125,000. The charge is only applicable after the minimum threshold price is reached and rises in conjunction with the value of the property thereafter.
If you already own a property or are purchasing a property as a holiday let, you’ll usually have to pay an additional 3% stamp duty on the total property purchase price, which is in addition to the normal rates.
*Stamp duty guide information from HMRC website
The rules and regulations are updated periodically, so it is advisable to make sure you are aware of the impact it will have on your buying price. Find out further information from HMRC on stamp duty.
Click below to work out a rough estimate of what your stamp duty will be.
To help the property market in the current climate, the government are offering a Stamp Duty Holiday where buyers will not need to pay stamp duty on properties up £500,000 with a discounted stamp duty rate on homes valued over this amount. The system is currently available until 31st March 2021 until further notice. On 1st April 2021, the reduced rates are expected to revert to the standard stamp duty rates. Read our complete guide to the Stamp Duty Holiday as well as our Furnished Holiday Let tax blog for everything you need to know about this aspect of letting your holiday home.
When the time comes to sell your property, providing you sell at a profit, you may have Capital Gains tax to pay. Fortunately, if you meet the conditions to be a Furnished Holiday Let, there are a few different Capital Gains tax relief options available.
You may qualify for Entrepreneurs’ Relief which means that when you sell your property, the tax rate will only be 10%. Business Asset Rollover and Gift Holdover Relief are other possible avenues to receive respite from taxation.
When buying a home to let you’ll be doing so with the aim of profiting either from capital appreciation or rental income.
If you would like a good idea of your property’s earning potential, our New Property Consultants can offer expert advice. Our team can talk you through the process of buying a property and give an idea of the income you can expect, based on our expert knowledge of our area, pricing and demand.
Enquire with our team of holiday letting experts today, call us on 01548 843773 or visit our let your cottage page to request your FREE Owners Guide.
So, you may ask, when is the best time to buy? With the current low interest rates on lending and the opportunity to pay either no or a discounted stamp duty rate, it’s an ideal time to look at investing in a fixed asset like property.
Trends indicate that the busiest day for property enquiries on Rightmove is the day after Boxing Day. According to estate agents, Luscombe Maye, the highest level of enquiries for holiday homes is during the month January. We had a chat with Luscombe Maye where they share tips on holiday home investments in Salcombe.
If you need assistance in buying a holiday home, we would be happy to put you in touch with some of our fantastic South Devon estate agents.
If you are thinking of investing in a holiday let, call our New Property Consultants for a no obligation assessment of earnings, bookings and return on investment. With our wealth of knowledge and years of experience in the holiday letting market, we can support you in making the perfect investment.
Contact our New Property Team on 01548 843773 for help and advice, whatever stage you are at. Alternatively, order a copy of our FREE Owners Guide.
If you’re looking to start a holiday letting business, the following owner guides may be useful to you:
* At the time of publishing, Coast & Country Cottages has taken all reasonable care to ensure that the information contained in this article is accurate. However, no warranty or representation is given that the information is complete or free from errors or inaccuracies. Generic information is contained within this article and each individual’s mortgage and saving affairs are different, further advice should be sought from a qualified supplier.