The Buy-to-Let Market Overview
By Chris Worthington
Short-term Letting T
his month (as at March 2020) the market overview will focus on a sector of the market that has been much in the news and is growing fast – short-term tenancies and holiday lets. This has been driven a flourishing staycation market, demand for short breaks and a continuing growth in inbound tourism. A recent report from the UK Short-term Accommodation Association (STAA) highlighted the advantages for investors in short-term and holiday lets and people who rent out their own home for short periods.
• If your total annual rental income is
less than £1,000 you do not have to declare it to HMRC.
• You can earn up to £7,500 a year
from renting out a room in your home for short periods without having to pay any tax.
• In England if your home is rented
out for less than 140 nights you will continue to pay just council tax. It you rent it out for more than 140 nights you will be liable for business rates. In Wales you will liable for business rates if it is available for 140 days and let for more than 70 days.
There are other tax benefits available for owners of holiday let properties. A recent report from holiday home developers Spot Blue noted that furnished holiday lets in the UK are treated as businesses and attract capital allowances while most of the running costs are tax deductible. In recent years the growth of this sector has been nothing short of phenomenal. Here are some relevant statistics from a report published by ARLA (the Association of Residential Letting Agents) in partnership with research consultancy Capital Economics:
• 16% of adults in the UK have let out all or part of their property at least once in the last two years.
• 4.5 million properties, the equivalent of
19% of the UK’s housing stock, have been used for short-term lets.
• 16% of landlords offer only short-term
lets and a further 7% offer short-term and long-term lets. 2.7% of landlords have switched from long-term tenancies to short-term lets equating to 46,000 properties.
• 38% of landlords cited the changes in tax
relief and more burdensome regulations in the long-term letting market as the main reasons for switching. 27% said that they expected to achieve higher rents from short-term lets.
The average annual income from Airbnb varies substantially by location with the most popular locations in London, Scotland, the South East and the South West. London has the highest potential monthly earnings at £3,000 followed by Edinburgh (£1,500), Manchester (£1,500) and Bristol (£1,400). However it should be noted that the variations by location are driven by local factors such as very high rents in central London and the boost to Airbnb lettings from the Edinburgh festival.
recommendations to limit the impact of short-terms lets, including measures to level the regulatory requirements and taxation for short-term and long-term lets; and also to consider introducing limits on short-term letting in areas where there is a demonstrable impact on the supply of property in the private rented sector on long-term lets. I have had some personal experience of the problems that might arise from holiday lets. I own a flat in a house that has been converted to five flats near the city centre. One of the other flat owners decided to rent his flat out as a holiday let. The first problems to emerge were litter from takeaway meals and latenight noise. This led to a complaint from my tenants that I passed on the freeholder. She informed me that a holiday let would directly contravene the terms of the lease and the insurance policy for the building. Fortunately the owner of the apartment reverted back to a conventional assured shorthold tenancy and we managed to avoid taking it court!
The rapid rise of holiday lets has caused some local authorities to begin to develop a more regulated environment for the sector.
The rapid rise of holiday lets has caused some local authorities to begin to develop a more regulated environment for the sector. The Scottish government is planning legislation to enable local authorities to introduce a licensing scheme for short lets and to establish designated areas where planning permission will be required before properties can be rented out. The scheme will also set safety requirements for shortterm lets and conditions for a licence may include dealing with litter and preventing overcrowding. In my home city of Bristol the council is also moving in the direction of tighter regulation and has endorsed a motion to regulate accommodation by owner occupiers. Cllr Estella Tincknell commented that “Airbnb properties are not subject to planning, not registered as hotels, not inspected for safety and do not pay business rates or VAT.” There is also some concern in the lettings industry. ARLA has issued a series of
There is no doubt that short-term lets can produce higher incomes compared with assured shorthold tenancies. However before venturing into it BTL investors need to do their homework.
• First up, find out if your lease, insurance
policy and mortgage company will permit it, and if a licensing scheme is being introduced by the local authority.
• Second, investigate the local market. Is it
a good location for holiday lets, how much local competition is there and what is the going rate per night?
• Then do the maths, taking into account how many days per year it is likely to be let.
• Finally don’t forget that the management of a short-term let is much more intensive that a conventional assured shorthold tenancy.
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