Holiday homes are now hot property as Britons rush to cash in on the staycation boom and tax breaks.
Estate agents in rural hotspots are reporting a trebling in enquiries as properties are snapped up in minutes.
The revival of the Great British Holiday following curbs on foreign travel means returns on holiday rentals could surge.
Pretty: Staycationers flock to areas like Salcombe, Devon, following curbs on foreign travel
Top properties on cottages.com already rake in up to £73,000 per year. But before you rush to buy, you must remember that not all homes will rent for this much – or all year round – and being a holiday home owner comes with substantial costs.
A stamp duty holiday means buyers could save up to £15,000 if they complete their deals before March 31 next year (check your potential bill with our stamp duty calculator) but they will still have to fork out a substantial amount in tax.
So, should you join the rush and is a second home or holiday let worth the hassle?
Above asking price offers and a rush to buy: can it last?
Exclusive data for Money Mail from cottages.com shows that queries from investors wanting to buy holiday lets are already up 25 per cent since the Chancellor announced the stamp duty holiday last week. Visits to its Let Your Property pages have increased by 180 per cent.
St Ives in Cornwall is one of the most popular spots for holiday lets in the UK. So much so that locals voted to ban the sale of new houses as non-primary residences in 2016.
But Paul Le Bas, regional director of Millerson estate agents, which operates across West Cornwall, says 80 per cent of his business is in holiday and second homes.
He says in the six weeks since the market reopened, the firm has done as many deals as it would usually do in three months.
We’re putting homes on the market that are selling 20 minutes later
‘I’ve never known a market like it in 20 years,’ he adds. ‘We’re putting homes on the market that are selling 20 minutes later.
‘Some buyers are offering over the asking price before viewing properties.
‘We had one property in Sandy Acres, just outside Hayle, that came to market for £330,000 late on Friday afternoon.
‘By Monday morning, we had 17 viewing requests, and letters through the door from people making offers before they’d viewed it. It sold for 7 per cent above the asking price.’
This comes despite forecasts from the Centre for Economics and Business Research (CEBR) predict house prices will fall by 5 per cent this year and a further 10.6 per cent in 2021.
But Le Bas believes holiday lets and second homes are outperforming the rest of the market and prices could even increase judging by current demand.
Prices in St Ives have increased by 29 per cent in the past five years, to £396,619.
Le Bas adds: ‘I can see buyers getting into the market now prior to prices increasing any further.’
Hotspot: St Ives in Cornwall is one of the most popular spots for holiday lets in the UK. So much so that locals voted to ban the sale of new houses as non-primary residences in 2016
The stamp duty holiday benefits investors too
The stamp duty holiday announced by Chancellor Rishi Sunak means anyone buying a holiday let or second home in St Ives will save £9,831, based on average prices for holiday lets.
That’s compared to the average saving of £4,500 for residential buyers across the rest of England, who tend to buy cheaper homes.
Buyers of additional properties still have to pay the 3 per cent additional home surcharge, but that is now a flat rate for properties up to £500,000.
It was previously 3 per cent up to £125,000, 5 per cent on the value between £125,001 and £250,000, and 8 per cent between £250,001 and £500,000.
Rishi Sunak faced warnings that a failure to bring in a stamp duty holiday immediately could kill the housing market
Those buying a second property worth £500,000 will save £15,000, the same as those buying a primary residence for the same price.
In Scotland, the Land and Buildings Transaction Tax (LBTT) will apply for purchases of more than £250,000 rather than £145,000 as before. However, in Scotland, those buying additional properties will still have to pay a 4 per cent surcharge.
In Wales, the threshold has been increased from £180,000 to £250,000, but those buying additional properties will not benefit.
Miles Kevin, director at Chartsedge estate agents, which specialises in second homes in Devon and Cornwall, says he has already had buyers and sellers get in touch following the cut.
‘Plenty of my clients have got a lot more interest in buying a house now,’ he adds. He says coastal properties are the most sought after, with demand greatest up to £300,000 before it plateaus beyond £500,000.
Phil Jones, of Ashdown Jones in the Lake District, says the stamp duty holiday could push prices up if sellers decide to cash in as well.
He has seen two deals in which the seller upped their asking price by £5,000 following the announcement, which saved both second home buyers £15,000, even though an offer had already been agreed.
‘I don’t think it’s necessarily the right thing to do morally, and it’s not what it was brought in for,’ he adds. ‘Prices will rise if that happens across the board.’
We’re buying a second holiday let
Cashing in: Emma and Greg Newton at their second holiday let in Sedgeford
However, Emma and Greg Newton are buying their second holiday let in Norfolk as they look to capitalise on a surge in staycations and stamp duty savings.
The couple, from Kettering, Northamptonshire, bought their first holiday let in Burnham Market, North Norfolk, in 2016 for £325,000.
They spent around £60,000 renovating the three-bedroom period cottage and it is now worth £525,000.
During peak season it is rented at £1,900 per week and makes £40,000 per year, a profit of £24,000 once mortgage payments and letting fees are paid.
Emma, 48, a silversmith, says it is already booked until the end of September. She believes the rise of staycations will mean holiday lets will only become more profitable over the next few years.
She adds: ‘Knowing how well the holiday let had gone in Burnham Market and understanding that the pandemic is going to cause people to holiday in the UK more, we thought we’d go for it and get another one.’
Their new property is a smaller cottage in Sedgeford, three miles from Burnham Market, which they bought for £310,000.
It, too, is booked until the end of September. Emma says she and Greg, 46, who works in IT, started looking for the property during lockdown and the reduction in their stamp duty bill by £5,500 was ‘another little bonus’.
The mother-of-two adds that they hope the extended season will mean their income will recover to its normal levels despite lockdown.
…but my second home was hit by local vigilantes
The booming holiday let market seems a far cry from the experience of second-home owner Tony Willis, who was the victim of a vigilante attack by locals in Bigbury-on-Sea, Devon, in March.
‘Go Home’ was daubed in the dirt on his family car, while leaflets telling him to do the same were posted through his letterbox.
It was one of numerous hostile acts directed at second-home owners after locals became enraged with affluent families fleeing the cities for their country boltholes.
A symptom tracker developed at King’s College London showing second-home hotspots had higher incidences of the virus than surrounding areas fanned the flames.
It prompted commentators to ask if the pandemic had made second-home ownership socially unacceptable. Not yet, it seems.
A big surge in British holidays… for now
Rishi Sunak faced warnings that a failure to bring in a stamp duty holiday immediately could kill the housing market.
But agents in holiday home hotspots say their market was already buoyant due to a surge in demand for staycations.
With the future of international travel still uncertain, Britons are looking closer to home for their summer breaks.
Holiday home owners are hoping this isn’t a one-off and travellers stick with staycations
Bookings for holiday homes between July 1 and August 31 are already up 156 per cent on last year, according to Holidu, a holiday let search engine.
In east Devon and St Ives, bookings are up by 263 per cent and 262 per cent respectively.
Holiday home owners are hoping this isn’t a one-off and travellers stick with staycations for the forseeable future.
Cottages.com says bookings for 2021 are already up 62 per cent over the past four weeks compared with 2019, with Cumbria and Devon up 98 per cent and 89 per cent respectively.
Many owners expect the season will extend into October this year, compensating for losses during lockdown.
Mike Graham, of Hackney & Leigh estate agents in the Lake District, says the area ‘didn’t really need the incentive of a stamp duty cut’.
He says activity has been ‘brilliant’ since lockdown was lifted.
‘People are worried about getting on an aeroplane,’ he adds. ‘There is a potential uplift in holiday lettings and there is no point in keeping money in the bank at the moment if you’re lucky enough to have that.’
Holiday home owners can still get tax breaks
Holiday let owners can also take advantage of tax breaks no longer available to buy-to- let landlords.
As of 2020/2021, buy-to-let investors will no longer be able to deduct all the interest they pay on their mortgage from the rental income they declare to the taxman.
But because holiday lets are classed as a business rather than investment, those owners can continue to do so.
Other perks include subtracting expenses and taking into account some, or all, of the value of furniture and essential fixtures and fittings.
To qualify for the tax relief, the property must be classified by HM Revenue & Customs as a Furnished Holiday Let.
This means it must be available to let by paying holidaymakers for at least 210 days a year, and lettings must have been agreed for at least 105 of those.
Anyone considering buying should remember, however, that they need to clear those hurdles to claim the tax relief and that the goalposts could be moved by the Chancellor in future.
Latest forecasts predict house prices will fall 5 per cent this year and 10.6 per cent in 2021. But experts believe holiday lets and second homes are divorced from the rest of the market
Leeds Building Society has responded to the predicted rise in staycations by reintroducing its holiday let mortgages.
It is offering two-year fixed rates until September 2022 at 2.84 per cent for borrowers with a 40 per cent deposit and 3.34 per cent for those with a 30 per cent deposit.
Dominik Lipnicki, of Your Mortgage Decisions, says affordability is normally calculated based on takings for 24 to 30 weeks’ occupancy, even if the client is booked up for 52 weeks.
But the number of holiday let mortgage products available is down from 162 to 60 and the number of providers is down from 20 to nine since March 5, according to data firm Moneyfacts.
The average rate is 3.48 per cent; borrowers will normally require a deposit of at least 25 per cent and a maximum term of 40 years is available from seven providers.
Will a stamp duty holiday and Rishi’s rescue be enough?
The showstopper was a big stamp duty cut, the important element was about keeping jobs afloat, and the rabbit out of the hat was a great British meal deal.
But the question is, was Rishi Sunak splashing the cash in the summer statement enough to get the nation’s confidence back in the coronavirus crisis, or will real recovery require more down the line?
On this week’s podcast, Simon Lambert, Lee Boyce, and Georgie Frost run the rule over the Chancellor’s plan and ask the awkward question of how are we going to pay for all this – and does that even matter right now?
Press play above or listen (and please subscribe if you like the podcast) at Apple Podcasts, Acast, Spotify and Audioboom or visit our This is Money Podcast page.
Stamp duty cut doesn’t help with a mortgage crunch
Critics say the stamp duty cut is not helping those who need it most. While those buying a main residence worth £500,000 will save £15,000, it will save buyers in the North East just £38 based on average prices in the region.
Meanwhile it does nothing to improve the paucity of loans available to first-time buyers.
Until March, young people could buy a house with as little as 5 per cent deposit, but fears of a price crash have seen these deals withdrawn. Most banks now expect buyers to have at least a 15 per cent deposit.
Self-employed workers are also facing stricter checks and may be asked if they have claimed a grant using the Government’s Self-Employment Income Support Scheme.
Property expert Henry Pryor says the Government should have helped younger people ‘who have been royally stuffed’.
He also casts doubt on whether holiday home prices will rise as predicted and believes that if they follow the overall forecast set out by the CEBR, a £500,000 home will lose £50,000 in value over the course of next year, wiping out stamp duty savings.
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