Following Brexit and the recent Covid-19 pandemic, more Brits are choosing the stay-cation over holidaying abroad than ever before. This means that UK holiday lets are in demand – and that’s big business for the owners of these properties!
What is a Holiday Let?
A holiday let is a property that is purchased to rent out as accommodation for guests to enjoy a holiday.
To be classed as a holiday let, the property cannot be rented for longer than 31 days to one set of guests. For periods longer than 31 days, an assured tenancy agreement will need to be arranged.
With booking websites such as Airbnb currently thriving, it has never been easier to establish your holiday let and find great customers.
Are Furnished Holiday Lets Profitable?
Many of the properties rented in the UK are classed as ‘furnished holiday lets’.
A furnished holiday let has unique tax advantages. These include being eligible for small business rate relief for council tax and capital gains tax. Additionally, owners are afforded deductible business expenses.
As the name suggests, the property must be fully furnished.
The holiday let is required to be available for rent for at least 30 weeks of the year, and must be occupied for at least 15 of those 30 available weeks. Additionally, the property must be making a profit.
What Is a Rental Yield?
The rental yield is a calculation used by many landlords to work out how profitable a rental property is.
A rental yield is a reasonably accurate calculation, as it considers the initial price of the property as well as the monthly income it generates. Most landlords aim for a rental yield of between 4% and 7%, depending on where in the country the property is.
There are generally huge fluctuations in holiday let occupancy rates. For example, the summer months are more likely to be full, especially for coastal homes. The Christmas period is also likely to be very busy, which will permit owners to add a premium to their weekly rate.
School holidays will also need to be considered, where owners will usually charge an increased fee.
How to calculate your rental yield:
Imagine that your holiday home rents for £600 per week, and it is generally filled for two weeks in every month on average.
Your monthly income will be £1200.
Now consider you paid £200,000 for that property.
Take the annual rental income (£1200 x 12) £14,400 and divide it by the home’s value, £200,000. = 0.072.
Multiply this figure by 100, and you will have an annual rental yield of 7.2%.
That would be a very impressive yield, considering it is based on a property at 50% occupancy.
The UK has a vast expense of countryside and is home to 10 national parks. Visitors travel from all over the world every year to visit our stunning greenery, and domestic tourism is continually rising.
Countryside holiday lets typically generate a yield of 3.5%, with an average monthly rent being £711 and the average property price being £243,505.
However, these rents can be increased by adding amenities tourists are looking for in the countryside, such as a hot tub or a woodburning stove. Elevating the style of the property will help generate more income and boost the yield.
Many landlords who purchase holiday homes in the UK aim for the sea. Not only do they offer an excellent opportunity for guests, but a lovely escape for your friends and family too. Of course, there is a considerable variation in yields across the country. Brighton offers some of the best yields for coastal locations, averaging 4.27%.
You may also be surprised to learn that city holiday rentals offer the best yield opportunities in the UK.
The top 20 cities average a yield of 5%, showing how much we brits love a city break. However, yields are a delicate balancing act between the monthly income and the original cost of the property.
So, while London properties will bring in substantially more income weekly or monthly, the initial cost of purchasing the house can be astronomical.
Considerations When Buying a Holiday Let
- Not all mortgage lenders offer loans for holiday lets. Those that do will generally require a more significant deposit than a standard home purchase.
- Sites such as Airbnb charge a fee for acquiring holidaymakers. However, they conduct a thorough vetting of guests and deal with payments.
- A holiday let is an excellent asset for your family. Not only is it a reliable and relatively passive income, but it also provides somewhere for you to holiday and enjoy quality time.
- Cities often attract more robust yields than coastal or country locations, but many alterations can be made to improve the latter’s quality and heighten the yield.
If you are considering purchasing a property as a holiday let, Ashmore Residential are your local property experts for the London area. Call us on 020 8366 9777 or email [email protected] to chat with a member of our friendly and experienced team.