The Coronavirus has affected all parts of the economy, including rentals, but tourism in particular has been hard hit. It meant that holiday lets came to a complete standstill during lock-down, whereas the traditional long-term lets have been far less affected.
Short lets, although they undoubtedly involve a lot more work, can achieve around 30% higher rates and yields than long-term lets, and they also have considerable tax advantages over the traditional letting; they are classed as a business as opposed to an investment income, for tax purposes. So its no surprise that as the Section 24 tax rules began to bite, many landlords switched to short-term holiday letting. The upshot is that many landlords are now looking to revert back.
Despite their undoubted financial advantages, given the right circumstances, holiday lets have their drawbacks as well, not least the amount of work involved in marketing and managing – there are strict HMRC tax rules to follow and rarely do they run at full capacity.
Most people who had booked holidays at home will have cancelled them by now and even as self-catering comes back on stream, there will be strict deep clean and sterilisation rules to follow on every change-over.
Matt Hutchinson, communications director of flatshare website, SpareRoom, told The Sunday Times:
“At the start of lock-down we noticed a trend in landlords and homeowners switching from using short-term rental sites [such as Airbnb] to looking for longer-term security, Some mentioned concerns over widespread cancellations, others about lots of people moving in and out.”
Lock-down may be easing, with the Prime Minister’s announcement today that holiday cottages are good to go, but the impact on short-term lets could last for a long time says David Alexander, joint managing director of the digital property management firm Apropos:
“Major sporting events and festivals have all been cancelled. It will be a long time before mass gatherings, sporting and cultural events are able to take place again. This is having a huge impact on the number of landlords switching back from holiday lets to long-term rentals.”
The key benefits of moving back to log-term lets are number one, a steady, regular income, and number two, a dramatic reduction in the amount of work needed to manage. No more marketing to fill the rental for days or weeks, several weeks in advance, no more weekly or fortnightly changeovers, no need to contemplate the cost and efforts needed for regular deep-cleans.
Alexander says, “It may be less than you have been getting previously on the short-term market. However, it is likely to be far less labour-intensive if your tenant stays for six or nine months.”
A few things to bear in mind if you are contemplating this move:
Check with your landlord’s insurance policy providers to make sure you are full covered and you need to make sure your rental still meets all the latest regulations – there have been many changes in the rules recently so a thorough overhaul of your your knowledge on these is essential. If you are using a professional agent all that should be taken care of for you.
If your mortgage is based on a holiday let business then you need to check with your lender to make sure your can switch to operating long-term tenancies. This could be an opportune time to review your mortgage to see if the recent reductions in interests rates offer opportunities for lower rates and a long-term fix. You should also have a word with your accountant to see just how it will affect your tax position, ideally before making any decisions on this.
Holiday rentals are classed as a small business, provided they are available to guests for at least 210 days a year. It means you are taxed on your profits after you’ve made deductions for running costs, including mortgage interest, which you can’t now get to the same extent with long-terms lets.
Fortunately there’s plenty of demand for longer-term rentals if your property is in the right location, and even in these difficult times a little bit of ingenuity, such having your own website, virtual viewings and marketing through the main online portals, you can secure a quite letting. Websites such as SpareRoom, Gumtree, Facebook Marketplace, or Rightmove and Zoopla using an online letting agency such as OpenRent can help.