Holiday lets boomed during the pandemic when staycations became all the rage, but with rising mortgage rates and a resurgence in international travel, you may be wondering if it’s still a lucrative option.
Experts say there is no one-size-fits-all approach to holiday letting, but if you take the right steps it can still be a rewarding way of generating income.
Here’s what you need to know about listing your property on popular platforms such as Airbnb, Sykes Holiday Cottages and Booking.com. This article will explain how to:
- Calculate your costs
- Find the right location and property
- Invest in décor and furnishings
- Know your target audience
- Offer flexible bookings
- Apply for a holiday let mortgage
- Read up on the regulations
- Win the support of your local community
- Take advantage of tax breaks
- Choose your listing platform carefully
- Take a more hands-on approach
- Find housekeepers and repair companies
Calculate your costs
The first thing to do is assess your finances before you invest.
Calculate the cost of the property you want to let, including mortgage payments, bills, cleaning, repairs and costs you’d incur for changeovers.
If you will need to renovate or decorate the property, add these expenses into your budget.
Find the right location and property
Research potential locations and consider factors like tourist demand, local attractions, amenities and competition.
Patricia Atkinson, 60, says she chose a holiday let property very close to her home, a few miles outside Barnard Castle in County Durham.
Being nearby has made it easier for her to look after the property, and means she has a thorough understanding of the area.
“We’ve always lived here,” she says. “You’ve got to believe in where your holiday cottage is. We love this area and it’s coming into its own. It’s hard work – you’ve got to be committed.”
Coastal properties earn 7pc more on average if they are in a good location, according to Sykes.
Parking and transport links are also worth considering, because they will make the property more accessible to a greater number of potential bookers.
Invest in décor and furnishings
Choose the right furnishings and decor to make the property suitable for your target audience – and as long-lasting as possible.
Bev Dumbleton, chief operating officer at Sykes, says: “You want it to feel homely, but also be as practical as possible.
“If you’re appealing to large families, make sure there are a range of bed sizes and enough chairs around the dinner table. Keep it cosy if you want to attract couples for a romantic getaway.
“Spending a bit of extra money on high quality, endurable furniture will save you money in the long run, as this has to withstand use by many different guests.
“Also think about how easy your furnishings are to clean as you will want to make this job as easy as possible – especially if you will be doing this yourself. Leather sofas, for example, are much easier to maintain than fabric.”
Certain property features will also help you get off-peak bookings, such as open fires and wood burners.
Holiday lets that have a hot tub earn 50pc more, on average, than those that do not, according to Sykes. It says year-round bookings are the best way of boosting your income, and these types of features can help you get them.
A short-term let property does not necessarily need to be catered to tourists. John Kerr, 70, has had success offering short-term lets to contractors doing temporary work in a given area.
He offers low prices, which attract a continued stream of guests in places like Leighton Buzzard, Bedfordshire.
Mr Kerr says the properties in Edinburgh, Canterbury and London attract a lot of tourists because of where they are located.
In Glasgow, he has had a lot of interest from international students who are looking for a few months’ accommodation at a time, as they go home during breaks.
“There are different markets for different areas, and different types of property,” he says.
Offer flexible bookings
Welcoming shorter breaks can increase your earnings by 30pc each year, according to Sykes.
It can therefore be worth allowing guests to book shorter breaks, especially in autumn and winter, when people want to escape for long weekends away.
Apply for a holiday let mortgage
If you are buying a property to rent out as a holiday let, you will usually need a holiday let mortgage if you cannot buy in cash.
There are fewer mortgage providers catering for this part of the market, according to Sykes Holiday Cottages, and the criteria is tougher than for other mortgage products.
A specialist holiday let mortgage broker, who has an understanding of the market, could help you find a suitable lender.
Most providers will want an income of 130pc to 150pc of the repayment value of the mortgage, and require a minimum 25pc deposit. Dumbleton says interest rates tend to be higher on holiday lets than on buy-to-lets.
Mortgage lenders will only lend on buildings of standard construction rather than canal boats or shepherds huts, for example, which are popular with tourists.
Read up on the regulations
Holiday let owners may be required to get planning permission to rent out their homes in England as part of Government proposals outlined earlier this year.
The plans, which are subject to a consultation, are expected to come into force later in 2023.
However, the rules are not expected to be retroactive, which means that if you already have a holiday let before they come into force you would not be affected.
Some local authorities, like Blackpool, already require planning permission for holiday lets.
In June last year, the Welsh Government announced new rules requiring holiday lets to be occupied for at least 182 days of the year. Previously holiday homes had to be occupied for at least 70 days.
If owners cannot meet that target, they face “council tax premiums” of up to 300pc of standard rates.
The Welsh Government is consulting on a form of statutory licensing which would see holiday let owners pay an annual fee to the Government or local councils for permission to trade.
In Scotland, where statutory licensing has already been introduced, the average annual fee is just under £600, according to the Association of Scotland’s Self-Caterers, a trade body.
The nation also requires holiday let owners to apply for a licence from their local council.
Local authorities in Scotland are able to require planning permission for holiday lets, so this will apply in some areas.
Win the support of your local community
Looming regulations can feel like tricky obstacles, but they are not insurmountable.
Andy Fenner, a holiday let owner and chief executive of the Short Term Accommodation Association trade body, recommends winning the support of the local community where you want to set up a holiday let.
“Go and talk to your neighbours – you might be surprised that people actually appreciate being spoken to,” he says.
“Let your neighbours have your phone number. If there’s any problems they can speak to you directly.
“If you want to set up a holiday let next to where somebody lives, the least you can do is answer the phone if there’s an issue. You’ll find that people also help you and they look after your property for you.”
He also said to make sure that people in the village know the positive impact that you can have on local businesses.
For example, tell guests to visit the local pub or find out if they have some kind of discount scheme that you can promote to help the local economy.
Take advantage of tax breaks
You will need to pay an extra 3 percentage points in stamp duty tax when buying your holiday let, as is the case for all second homes in England.
Dumbleton says: “Holiday let owners can claim on the wide range of tax reliefs which are no longer available to buy-to-let landlords.
“With an increasingly tough tax regime for buy-to-let, it’s really no surprise that so many are turning to holiday lettings instead.”
Shaun Moore, a tax expert at wealth manager Quilter, says you will need to declare your income on your annual tax return.
He says: “There are a number of expenses associated with your holiday let business that can be deducted from your taxable income.
“These typically include any costs that are directly related to the letting of the property. These might be agent fees, cleaning, maintenance, utilities, insurance, and advertising costs.”
Moore says the main benefit is that you can offset expenses, including mortgage interest in full. This used to be the case with private letting, but is now restricted to 20pc.
“Finally, the income gained from a furnished holiday let is classed as ‘net relevant earnings’ for pension purposes, allowing you to make tax-advantaged pension contributions,” he said.
Annual pension contributions are capped at 100pc of your earnings in a given tax year.
Be aware you may have to pay capital gains tax when you sell the property.
If you’re buying a holiday let outside the UK, the tax situation is more complicated, and it is worth getting advice from a tax adviser who is familiar with the rules in both countries.
Choose your listing platform carefully
There are numerous options for where you can list your holiday lets, and the most popular in the UK are Airbnb and Sykes Holiday Cottages.
Sykes offers a fully managed service, but can also tailor a partially managed service to suit your needs. Airbnb cannot manage your property in most locations, but does have a partner service that can help in London and some other cities.
There are third party companies who will manage your holiday let for you.
Ms Atkinson uses Sykes, which fully manages her property in County Durham, and earns a pre-tax income of about £22,000 a year.
She says her electricity bills have gone up substantially in the past year but she has had to lower prices because visitors have less disposable income to spend.
“We had to squeeze on our profits but it’s still profitable and worth doing but it has to have high turnover to make it work,” she says. “We have a lot of bookings.”
Sykes set the pricing, which can alter from week to week, and the property is booked 51 weeks a year.
Others prefer a more hands-on approach.
Kerr manages his six holiday lets himself. He got into the business in 2008 and has tried Airbnb, but now prefers Booking.com.
“I think Airbnb is for amateurs frankly,” he says. “Booking.com is the one to use.”
He says the platform is more sophisticated and offers good loyalty programmes for its hosts.
Booking.com charges a commission of around 15pc, but he opts to pay 18pc because he gets a lot more bookings through extra promotions.
Kerr says he adjusts his prices accordingly to make up for the extra costs.
Kerr says the returns on holiday lets vary but it is feasible to earn a gross income of £30,000 to £50,000 per property. Once taxes and costs are subtracted, the take-home amount is around half, he says.
Find housekeepers and repair companies
If you’re going to self-manage your property you may need to hire cleaners or other professionals.
Kerr says he uses Nextdoor.com to find locals who can help with maintenance.
“I do it remotely,” he says. “I’m hands on. I’ve got great housekeepers and good hands looking after the place but it’s all done online. I’m quite attentive to the properties – I go there and stay in them and improve them.”
Have you owned a holiday let? Have you had any problems? The Telegraph wants to hear your story, please email alexa.phillips@telegraph.co.uk