Are you selling up for a short-term let?

Landlords across the UK are considering quitting the private rented sector. Recent tax changes and new regulations on the horizon are causing landlords to consider their position and ask themselves if the stress of managing mid-term or long-term rentals is worth it anymore.

In this guide, we’re explaining some of the benefits of investing in holiday lets and how you can get a new property up to scratch.

The rise of holiday let investments

Many landlords wanting to make the most of their property portfolio are transforming their homes into short-term lets or selling off older houses in order to be able to afford newer, better-quality properties to let out. In fact, according to Aspen Woolf, 16% of landlords solely focus on short-term tenancies already and a report by ARLA Propertymark suggests 230,000 landlords in the UK are likely to make the switch to short-term lets.

This may be particularly prevalent for landlords looking to sell some of their older housing stock in exchange for newer, potentially more profitable, homes. Not only do short-term lets diversify property portfolios, they can provide a new revenue stream for landlords wanting to take a step away from long-term rentals.

Research from insurance brokers Alan Boswell Group suggests owners of short-term lets could expect average yields of around 9.8% (the current average rental yield is 4.75% in the UK). So it could certainly be worth considering for landlords wanting to replace inefficient properties with more luxury homes that can be offered up on a short-term let basis for a much higher price point.

The difference between short-term, mid-term and long-term rentals

Short-term vs long-term rentals

There’s no right or wrong when it comes to deciding whether to manage a short-term let or become the landlord of a long-term rented property.

Property owners usually make a decision based on financial security, the complexity of landlord regulations or the time and cost of property management.

Financial factors to consider

There was a time when landlords far preferred the financial security of having a long-term tenant. There’s no doubt about it – while short-term rented properties can demand a higher price per night, occupancy rates can be unpredictable. For landlords with bills of their own to meet, such as mortgage repayments, this can seem like a risky venture compared to simply renting a property on a fixed-term basis in return for guaranteed income.

However, with the introduction of Section 24, many landlords are finding long-term tenancies a lot less profitable. The tax changes mean landlords are only able to claim back mortgage interest costs up to the basic income tax rate (20%). With this significantly impacting the bottom line – particularly for those who’ve been pushed into a higher tax bracket as a result of the changes – some property owners are looking for alternatives.

Experts suggest landlords can earn up to 30% more revenue from a short-term let – if managed correctly. The average Airbnb host in the UK, for example, can expect to earn well over £6,000. Airbtics discovered that UK hosts can earn an average daily rate of £173 so, depending on occupancy rate, a short-term let could be a great way to make a steady income.

Guests do, however, expect short-term lets to be furnished and cleaned to the highest standard. This is the sole responsibility of the property owner, and it can be costly to ensure the property is well-maintained and furnished to an exceptional standard in order to justify a high price point.

Rules and regulations

Two major regulation changes are on the horizon: the Renter’s (Reform) Bill and the Minimum Energy Performance of Buildings Bill. Both are still being proposed but, if the new regulations do come into play, this is likely to make life a lot more complicated for long-term landlords.

For example, landlords of properties with an Energy Performance Certificate (EPC) of D or below will be legally obligated to spend up to £10,000 making energy-efficient improvements to the property. The aim is to ensure all new tenancies have an EPC of C or above by 2025, and this will apply to all tenancies in the private rented sector by 2028.

This alone is driving thousands of landlords to sell up their older properties in a bid to avoid spending thousands of pounds on upgrades and disruptive renovations.

Though all short-term rental properties also require a valid EPC certificate and will be subject to the proposed new regulations too, it’s likely landlords will sell older housing stock in return for newer, more desirable properties they can rent out on a short-term basis for a higher price per night.

The Renter’s (Reform) Bill also brings with it a myriad of question marks. The proposed abolition of ‘no fault’ Section 21 evictions is causing many landlords to wonder what their rights will be should they get a bad tenant. This is much simpler to manage with short-let properties as tenants typically only stay a few days or weeks.

Property management

Landlords of long-term rented properties have far fewer management responsibilities. While they’re responsible for repairs and long-term upkeep of the property, the day-to-day maintenance of the property is in the hands of the tenant. Landlords also have the option to outsource all aspects of managing the property to a letting agent for a fee.

Short-term lets can require a lot more work. They’ll need to be cleaned between each guest’s stay, new guests will need to be welcomed to the property and, of course, all bookings will need to be effectively managed. Property owners are also responsible for all the bills so, even if the property stands empty while waiting for new guests to arrive, you’ll need to pay for any bills and utilities.

Both short, mid and long term properties may require regular home improvements and refurbishments to ensure they remain habitable.

That said, those responsible for a short-term let may find they’re able to outsource a lot of the day-to-day management of the property (in a similar way letting agents are often paid to manage long-term rentals).

Regulations for short-term rentals

It’s always worth checking with your local authority to make sure you’re compliant with any regulations or restrictions. You may find you need planning permission for your holiday let depending on the type of property and how you intend to use it. Property owners in London, for example, are only able to let their property out for 90 days of the year without requiring full planning permission.

Owners of short-term rental properties may wish to register the property as a business. To do so, the property must be let out for more than 70 days each year, and be available to be rented out for 140 days of the year. Registering the holiday let as a business means council tax will not apply and you will be required to pay business rates instead. You may also be able to offset maintenance costs (such as new furniture or appliances) against tax.

You may also benefit from further tax advantages if the property is treated as a Furnished Holiday Letting but there are specific terms you must comply with.

All owners considering letting their properties out on a short-term basis must also keep the following in mind:

• You must abide by any restrictions or rules set by your local authority
• If you have a mortgage, make sure your provider gives permission for you to let out the property. You may need a buy-to-let mortgage product
• If the property is leasehold, make sure your lease permits short-term letting
• Ensure the property complies with all health and safety laws
• The property must be inspected by a Gas Safe registered engineer every year, and you must have a valid gas safety certificate
• You must have a smoke detector fitted in the property, and it’s recommended to also have a carbon monoxide detector if your property has gas appliances
• A full fire safety risk assessment and general risk assessment must be carried out
• All furniture and fittings should have a non-detachable fire safety label
• All electricals in the property must be checked for safety
• You must arrange suitable insurance, including buildings and contents, public liability insurance and employers’ liability insurance if necessary
• You should be aware of the TV licences the property needs and ensure this is arranged
• You should consider the accessibility of the property, and make reasonable adjustments if required
• Your water supply must be tested every five years
• You must pay tax on any profit from short-term rental income – always speak to a finance professional to ensure you pay the right amount of tax

However, new regulations are being discussed that could impact those wishing to let out their property. This could include a registration scheme for short-term lettings and new “planning measures to give local authorities greater control over the number of short-term lettings in their area”.

Getting your holiday let ready for the summer

Whether you’ve sold an older property in exchange for a newer home ready to let out to holidaymakers or you’re renovating an existing property in your portfolio to boost its Airbnb appeal, you could use a home improvement loan to help make the cost of a big renovation more manageable.

To benefit from being able to charge premium prices, property owners must ensure their holiday lets are fitted and furnished to the highest standard. The average kitchen costs between £15,000 to £20,000, while even something as simple as painting a house can cost up to £4,000.

Taking thousands of pounds out of your savings or having to wait for your budget to build while guests remain unsatisfied might not be ideal solutions. Borrowing the money you need and paying it back over time might be just what you need to get your holiday let back up to standard.

With a Novuna Personal Finance loan, borrow between £1,000 and £35,000 from 6.9% APR Representative (£7,500-£25,000) and pay it back between two and seven years. Get a quote today to find out how much you could borrow.