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Discovering whether or not a holiday let is a good investment for you is a vital stage when thinking of buying a holiday let. You will need to know if the market is in a good place, how much money you could earn from your holiday let, and what the potential disadvantages are to investing.
The truth is, the UK staycation market has never been as positive as it is currently. The pandemic has allowed the people of the UK to realise what is on their doorstep, and that you don’t need to go abroad to experience stunning views and golden sands. With all this in mind, now could be the perfect time to invest in a holiday let.
Learn more about why buying a holiday let could be a good investment for you…
What is a holiday let?
Are holiday lets a good investment?
What are the disadvantages of owning a holiday let?
What are the costs of buying a holiday let?
What types of holiday let mortgages are there?
What Return on Investment (ROI) could you expect from a holiday let?
Best places to buy a holiday home
How to maximise your income
Ready to get started?
It may be helpful to understand exactly what a holiday let is, before you decide whether or not it’s a good investment opportunity.
A holiday let is a property that is rented out by holidaymakers for short periods at a time, from as little as one night, right up to a few weeks. At Sykes, the longest time you can stay at a property is 28 days (four weeks).
It is important to note that ‘holiday lets’ and ‘short-term lets’ aren’t exactly the same thing. In order to be classed as a holiday let, your property must be occupied by holidaymakers. It is possible to run a short-term let for residential guests, and you need to be very careful to differentiate between the two.
A holiday let is classed as a business, therefore you must be seen to have an active intention of making a profit in order to class as one. Your property must also be furnished sufficiently in order to class as a Furnished Holiday Let, which can result in tax advantages for you.
Your property must be available for holiday letting by paying guests for a minimum of 210 days in a year, and must actually be let out for 105 of these days.
Read our posts that asks ‘what is a holiday let?’ for more detail.
The success of your holiday let investment could be considerable if you give it the right care and attention, but it is no walk in the park and there is much to consider.
Some of the main considerations to keep in mind when thinking of buying a holiday let include:
Here are some of the main reasons why holiday lets are a good investment:
The UK has become an increasingly popular place to holiday over recent years, and it’s showing no signs of slowing down.
A Visit Britain study survey shows that during 2019 (the most recent ‘normal’ year), the spend on UK staycations was over £24.7 billion – an increase of almost 3% on the previous year.
2022 is set to look even brighter for UK holiday let owners. Our 2021 Staycation Index told us that 46% of people are more likely to consider a staycation now compared to pre-COVID – showing that the closing of international travel highlighted the excellent holiday destinations much closer to home. Our study also showed that half of our 10 most popular destinations in 2021 were on the coast, while the other five were walking destinations – keep this in mind when thinking of the best places to buy a holiday home.
With this in mind, now could be the ideal time to invest in a holiday let, as the demand in the UK has never been greater!
One of the benefits of short-term letting instead of long-term letting, is the potentially higher income that holiday lets can offer. Our data tells us that the average holiday let earns around £21,000 per year, compared to the £13,000 per year quoted by Landlord Today in 2019.
Holiday lets benefit from flexible and often daily pricing, as opposed to long-term lets which typically adopt strict monthly pricing strategies – it is not uncommon for holiday lets to earn more in a week than a long-term let will generate in a month. If your holiday let is successful, this could result in a much higher income return than if you chose to long-term let.
As holiday lets are classed as being a business, you may be eligible for a number of tax benefits that wouldn’t be available for buy-to-let property owners. Some of the holiday let tax relief opportunities include; Mortgage Interest tax relief, Business Rates relief, Capital Gains tax relief and more.
You can also gain other tax relief if your property is fully furnished, just ensure that your property is fully furnished and available for guests to stay in order to be eligible. Check out our furnished holiday let tax guide for more information.
Discover how to start a holiday let business for more guidance on beginning this exciting journey.
Another positive of owning a holiday home to let out is that you can have a staycation of your own without needing to pay.
Although this is a great advantage of owning a holiday let, be wary that you could be impacting your potential income by using your property for yourself during peak times.
The consistency of income is one of the main differences between short-term letting and long-term letting, which can be a disadvantage to those looking to holiday let.
As holiday let guests stay for shorter periods, and business is much more demand-led in comparison to residential buy-to-lets, this means that there is no guarantee of a full calendar throughout – especially in the winter months as less people are looking to go on holiday.
There are ways that you can make up for this as a holiday let owner however, as short-term letting allows you to increase your prices during the busier months to offset the lower season months. Learn how to set your holiday up for winter to try and maximise your off-peak bookings.
Running a holiday let requires regular attention, which is a downside for those that don’t have as much time on their hands.
Full changeovers, cleaning and any maintenance needs doing after each stay, which can be hard to keep on top of during peak periods.
If you don’t think that you have enough time, or you live far away from your property, then holiday let management agencies such as Sykes can help you out. We offer a bespoke Managed Service that is designed to give people a helping hand with their changeovers, cleaning, maintenance and more. Services like these do come at a cost, however it can really help keep on top of things and help your business continue to run smoothly.
In contrast with long-term letting, owning a holiday home to let out means that you are responsible for covering extra costs such as utility bills and council tax. You can however include such costs within your rental rates to keep your outgoings down. Use our guide on the costs of running a holiday let to work out which extra costs need to be accounted for.
When considering a holiday let investment, there are extra costs that must be taken into account.
Stamp Duty for holiday lets is one of the larger costs that people may not consider when looking at investing in a holiday home. Also known as Stamp Duty Land Tax (or SDLT), it is a tax that must be paid when buying a property in England or Northern Ireland. The amount that you pay depends on the purchase price of your property (Stamp Duty is only required for properties bought for £125,001 or more).
VAT and Business Rates are among the other additional costs that must be accounted for if you are considering investing in a holiday let. Read our furnished holiday let tax guide to find out more.
When buying a holiday let, you’ll need a specific holiday let mortgage that suits this type of activity. There are fewer providers offering this type of mortgage than those that offer standard mortgages, and there can often be restriction, such as the maximum loan-to-value (LTV) a provider will offer. Read more about how to qualify for a holiday let mortgage for further information.
There are also some tax benefits with holiday let mortgages. For example, you can currently offset the interest on your mortgage against the rental income you make. So, if your property made £12,000 in one year and the interest on your mortgage for that year was £9,000, you would only be liable to pay tax on the £3,000, according to your own tax rate.
Our complete guide to holiday let mortgages has all the information that you need.
When trying to decide if holiday homes are a good investment, it is important to estimate what Return on Investment you can expect before you begin purchasing a property.
On average, Sykes owners earn around £21,000 annually through bookings, but the amount that you could earn will depend on a variety of factors such as:
Where you buy your holiday let is one of the first and most important decisions you are going to make – getting this right will go a long way towards helping your investment towards success. There are many considerations to keep in mind when choosing where to buy a holiday let, such as the popularity with tourists, the volume and quality of competition, as well as the property being in a location that suits you from a management and changeover perspective.
The most popular destinations among Sykes customers in 2021 were dominated by coastal hotspots and walking havens – this could be something to keep in mind during your research.
As well as the location and type of your property having an impact, you can also include desirable features that both make you stand out from other similar properties, but also allow you to increase your rental rates to maximise your income.
Some of the most popular features among UK holidaymakers include open fires and woodburning stoves, WiFi, and especially hot tubs. Guests are looking for that something extra when they go on holiday, something that they perhaps would’ve have at home. Keep this in mind when furnishing your holiday let.
This is something that is perhaps often overlooked when starting a holiday let business, however it can really pay off to consider and target a certain type of guest. Rather than setting up a holiday let that you think looks nice and hoping that the bookings come flooding in, the more savvy plan would be to take a look at the kind of holidaymakers that the area attracts and cater towards this.
If your holiday let sits in a popular watersports location, you may consider including a space to store wetsuits and equipment, if you are close to well-known walking spot, you might offer somewhere to leave muddy boots, some suggestions on the best routes and perhaps provide an open fire for your guests come back to after their adventure.
It is also important to consider setting up to cater to an audience that suits you. For example, if you want to minimise the amount of cleaning during changeovers, you might choose not to accept parties, pets or children.
The size of your property and how many it can sleep is one of the most influential factors in how return on investment you can expect from your holiday let.
The way that you configure the rooms in your holiday let can be a tough decision to make – do you look to increase your income by adding another bedroom, or do you keep the party size lower and offer a special feature such as a games room or snug to try and provide a truly special experience?
This all comes down to what suits you the most in terms of the holiday you’re looking to offer and which types of holidaymakers are you looking to bring in. An important point to keep in mind is to try and provide one bathroom/WC for every bedroom in the property.
Here at Sykes, our Revenue Management team use our unique and dynamic pricing tool to help holiday let owners earn as much money as possible from their bookings. Rental rates are constantly changing to keep in line with seasonal trends and customer demand. Successfully adopting a dynamic pricing strategy would be very difficult on your own.
Our helpful and knowledgeable team of Property Consultants are also on-hand to offer any advice and guidance that you may need. Each focusing on their own area of the UK, they have a wealth of knowledge to share regarding location, pricing and demand to help make your decision.
If you’re open to choosing a property based on its earning potential rather than having your heart set on a specific location, here are some top tips to help.
In our in-depth review of the UK holiday let market, the Sykes Staycation Index 2021, we found that you earn 11% more on average if your property accepts pets, while properties with hot tubs make 54% more than other properties in the same region.
Our data revealed that the Peak District was the top-earning location in the UK, with four-bedroom properties making an average of £27,000 in gross income per year, while the Cumbria came second, with four-bedroom properties earning an average of £26,000 annually.
If you’re always on the lookout for the latest trends, there are some destinations in the UK that are becoming increasingly popular. We take a look at the best places to buy a holiday home in the UK, with regions such as Dorset, Devon and Northumberland coming out on top.
When you’re choosing the location of your holiday let, think carefully about who you are trying to attract – for example, do you want to attract families in Cornwall or outdoor lovers in the Lakes?
However, if you’re planning on visiting your holiday home with family and friends too, don’t forget to factor in your journey time to the property as well.
Likewise, if you plan on managing changeovers and maintenance to reduce costs, you’ll need to be able to travel to and from the property easily. Alternatively, you can manage your holiday let remotely.
When you’ve bought your holiday home, there are ways to boost the income you get from it. We noticed some clear recent trends that could help you generate more revenue.
Our customers are clearly looking for a little luxury, as properties with hot tubs, on average, earn 54% more than those that don’t. Holidaymakers also want to stay connected while they are away – properties with Wi-Fi earn up to 16% more than those without.
Home comforts are also attractive to travellers in the UK. For example, offering pet-friendly facilities could boost your earnings by up to 11% a year, while installing a welcoming log burner could increase your income by around 14%.
Letting your property through the best holiday letting agents can also maximise your income greatly. This is down to the large exposure and professional marketing they can deliver for your property.
Read our guide on the five ways to maximise your holiday let income for even more ideas on how to increase your earnings.
Do you have your mind set on the journey? If so, ensure that you are taking the right first steps on your journey.
There are a range of informational guides out there to help you on your way on a variety of different holiday letting topics including:
Discover how to start a holiday let business for more guidance on beginning this exciting journey.
* At the time of publishing (4th March 2022), Sykes 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
*Based on a 7 bedroom property in the Lake District with bookings between October 2017 to September 2018.
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