Buying a holiday let in the UK can be a daunting prospect. And if you’re a first-time buyer, it’s easy to get overwhelmed when considering all the potential options and price ranges for holiday homes. Fortunately, you’re not alone, and you can get the purchase through faster when armed with the right information.
With some research and practical tricks, buying your first holiday let is easier than you think. Here are 10 tips to help you make a more informed decision when buying a holiday home for investment UK.
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Top 10 Tips for Buying Your First Holiday Let In UK
Without further ado, let’s get into Houst’s top 10 tips for buying a holiday home for investment UK.
1. Determine How You’ll Use Your UK Holiday Home
The first step in buying a holiday home is determining how you’ll use it. Do you want to use it as a temporary residence, a vacation home, or to rent out to other holidaymakers? Answering this question is crucial, as the type of property you should buy will depend on how you plan to use it.
Furthermore, the type of mortgage you can access will vary depending on how you use your holiday home.
Suppose you’re considering using it as a temporary residence to escape the bustle of city life. In that case, you’ll want to look for a property in a rural area that’s calmer and has a lower cost of living than in cities.
On the other hand, if you’re looking for a vacation home that you can use and rent out to others when you’re not using it, you’ll want to focus on areas close to popular tourist destinations.
2. Decide on Your Target Market
Your target market is one of the crucial considerations when buying a rental property. The type of guests you want to attract to your property dictates its location, size, and style. For example, the decor for a family-friendly rental near the beach will differ from a luxury downtown apartment designed for business travellers.
The same goes for travellers in larger groups, seniors, or disabled guests. For example, you may want to consider a ground-floor unit or one with an elevator if you plan to host elderly people or guests with mobility issues.
Think about the experience you’d want your guests to have and the kind of property that best suits their needs. Doing this research upfront will help you find the right holiday let investment.
3. Lock Down a Location
Picking the right location is vital because it determines the sellability of your listings – both in terms of renting it out and when you finally come to sell it.
Ideally, the area should be popular with tourists. This criterion is to ensure that there’s a steady stream of guests coming through your door. Also, the locality should be nice and secluded so guests can relax peacefully without pesky passers-by.
Check out the transport links too. No guest wants to be stuck in the middle of nowhere without any way of getting around. The area should have supermarkets, banks, and other essentials nearby.
If you need help figuring out where to start your search, consider some of the most popular locations for holiday lets in the UK: Devon, Yorkshire, Dorset, Peak District, and so on. Ensure you visit your ideal site often and at different times. This way, you’ll have a good idea of what potential guests can expect from the area.
You may also consider checking the most up-and-coming property areas in the UK – this will help in buying a holiday home for investment and ensure your property goes up in value.
4. Determine the Income Potential
When buying a holiday home to rent out, you must determine the income potential of the property. That way, you know what to expect in terms of returns on your investment. There are a few ways to estimate the income potential of a holiday home. One way is to use an Airbnb profit calculator. These calculators are reliable because they consider an area’s occupancy rates and average rental prices.
Another way to determine a property’s income potential is to look at the local market. The local market rates will give you an idea of the rent you can charge your guests. You can also take advantage of Houst’s property calculator and expert housing strategy to get a more accurate estimate of your property’s potential rent.
Whatever method you choose, it’s important to do your research in the area before you buy. This step will help you make an informed decision about your investment.
5. Create a Budget
When buying a holiday home for investment in the UK, it’s essential that you create a budget and stick to it. A budget helps you stay in control of your spending; that way, you’ll be able to save up for other expenses, like furnishing your property and additional costs down the road. It will also give you clarity as you can better assess what properties are within your budget.
So how do you create a budget for your holiday let investment? Start by determining how much you will spend on your holiday home. This includes the purchase price, necessary renovations, and ongoing costs such as utilities and insurance. Usually, your property’s income potential will influence your budget.
Next, research the prices of properties in your desired area. This step will give you an idea of how much your dream holiday home will cost. Finally, create a realistic budget based on your research and your financial situation. This will help you narrow your search to properties within your price range.
Once you have your budget, stick to it! Refrain from overspending just because you find a property you like. Remember, this is a long-term investment, so you must be mindful of your finances.
6. Get Funding
Owning a holiday let is a significant financial decision. The good news is that you don’t need to have all the money at once to acquire a holiday home. You can secure some funds by applying for a holiday let mortgage from banks and lenders. Another way to get your holiday home finances is by applying for a bridging loan.
Nevertheless, a holiday let mortgage is the ideal choice for funding. With this type of mortgage, you could access some tax relief claims. Some lenders may request you have a minimum deposit of at least 20 - 25%. Others may request a deposit of 30% or more.
To help more on this topic, we have created a complete guide on what are holiday let mortgages. Read this to learn more about this funding and its access criteria and advantages.
7. Add on Insurance
It’s important to have insurance when investing in holiday lets. Several things could go wrong with your holiday property investment, from burglaries to fires. If any of these situations occur, insurance will help to cover the costs.
There are different insurance policies for different houses — buy-to-let property insurance, home insurance, and so on. However, holiday let insurance is the ideal option for your holiday home. Holiday let insurance typically covers holiday let owners in the event of accidents or injuries occurring on their premises and for accidental damage caused by tenants. It also has some tax relief perks.
When choosing an insurance specialist or service provider, compare policies and prices. Don’t just go with the first policy you find—shop around and compare rates to ensure you’re getting the best deal. Also, read the small print. This is especially important for insurance policies, as they can be full of hidden clauses and exceptions.
Read our holiday let insurance blog to learn more about it and how it can protect you, your property, and your guests.
8. Hire an Agent
Agents have the knowledge and experience to help you find the perfect property. They can guide you through buying a holiday let, from negotiating the contract to finalising the sale.
So how can you find a good agent? You can ask friends and family for recommendations, check out reviews online, or reach out to holiday homeowners and ask them for references.
Once you’ve found an agent you trust, ensure you have a clear contract with them, spelling out their fees and what they will do for you. Ask to see examples of properties the agent has successfully sold in the past and speak to previous clients if possible.
Some people may be unsure of working with an agent because of the fees. Every situation is unique, but be aware that the right agent will make you more money than they cost by saving you time to focus elsewhere and get the best value for your money.
9. Learn the Tax Implications of Your Holiday Home
It’s important to learn the tax implications of your holiday let investment in the UK, as they can vary. If you’re renting out your holiday home for more than your annual mortgage interest and other allowable expenses, you’ll need to declare all your rental income and pay tax on it.
Other factors affect the percentage of tax you pay on your holiday home. For example, if you’re classed as a high-income taxpayer, you’ll pay a higher tax rate on your rental income unless you put your earnings through a business.
Nevertheless, one of the perks of furnished holiday lets is that they are exempted from some taxes that apply to other types of rental properties. This is because holiday lets are viewed as business properties rather than investments. The reliefs include;
- Full mortgage interest tax relief
- Ability to offset some furnishing and equipment costs against your rental income
- Ability to deduct utility, cleaning, maintenance and property management expenses
- Capital Gains Tax Relief when you sell your holiday let.
Note that your property has to meet HM Revenue and Customs (HMRC)’s criteria for a furnished holiday let to access the above reliefs. These criteria include that your holiday home must be furnished and available to paying holidaymakers for at least 210 days in a year, and it must also be let for at least 105 days yearly. Lettings to family and friends at reduced rates do not count.
10. Employ the Help of a Property Let Management Company
Hiring a property let management company can help you take care of your holiday home, track all the activities in the property, and ensure that everything is running smoothly.
These companies help holiday homeowners to manage bookings, handle key exchanges and guest communication, and deal with any issues that may arise. This gesture can be a huge time-saver, especially if you need to familiarise yourself with the process.
Furthermore, top Airbnb service providers like Houst often provide expert advice on how to make your property more profitable. You can maximise your let’s yield by optimising your listing and making small tweaks to your decor.
Are Holiday Lets a Good Investment?
Is a holiday home a good investment? Unfortunately, there is no one-size-fits-all answer to this question, as the return an individual will get on a holiday home investment will vary depending on several factors. These factors include the property’s location and size, the occupancy level, and the market conditions at the time of purchase.
However, a holiday home is generally more profitable than long-term rentals if it’s in a good location and has low maintenance costs. The average holiday let owner earns about £21,000 yearly, according to Sykes Cottage Index. And they can even charge more by upgrading the amenities in their listings and choosing a reliable Airbnb management service to handle the day-to-day operations. This way, you’ll be able to generate passive income while having plenty of flexibility and freedom.
How Can Houst Help You Maximise Your Earnings Potential and Reduce the Workload?
Houst is a professional short-let management team who optimises your income while handling everything for you. We help holiday home owners to list their holiday rental spaces on the largest booking platforms. This results in increased occupancy rates and owners gaining free time that they can focus on elsewhere, such as spending time with family.
Houst specialises in maximising the owner’s earnings on each listing with an in-house team of pricing specialists. These specialists will get the most from your investment properties and holiday letting business based upon our experience managing over 300,000 Airbnb bookings.
Even though we do all the legwork for you, you’ll still have complete control over your property. Our Dashboard is at the centre of everything we do to bring you transparency and control. With the dashboard tool, you can see your bookings, block out your calendar and speak with our customer support team anytime, anywhere.
Frequently Asked Questions (FAQs) About Buying Holiday Lets
What kind of mortgage do I need for a holiday let?
There are different types of mortgages that you could apply for, but your best option depends on how you want to use the property. If you’re buying a holiday let property for personal use, you will need a second home mortgage. But if you’re buying a holiday home to rent out regularly for passive income, you will need a special holiday let mortgage.
You should talk to a professional mortgage advisor to help you make a more informed decision. Buying a property
What are the running costs of a holiday home?
The running costs of a holiday home can vary depending on the type of home, size and location. These expenses typically include mortgage repayments, council tax, heating and cooling costs, furnishings and utilities.
How can I maximise my returns from a holiday property investment?
Ensure you research the local market carefully and choose a property in a popular area. Also, consider working with a reputable holiday property management to help you price and market your listing properly.
Can you get a holiday let mortgage as a first-time buyer?
Yes, it is possible to get a holiday let mortgage as a first-time buyer. Contact your mortgage advisor to find out more about your options.
What is a good yield on holiday let?
The rent you can charge will depend on your location and property type. However, a good rule of thumb is to aim for a yield of at least 8 to 10 per cent annually.
Interest rates can greatly impact the yield you aim for with your holiday let. For example, if you’re making an 8% yield and interest rates increase to 6% on your mortgage, most of your profits will disappear.
How much time do I need to dedicate to managing my holiday let?
The amount of hours you choose to spend managing your rental property is entirely up to you. It can be a full-time job if you decide to handle all the communications, bookings, and maintenance all by yourself. Alternatively, you can hire an Airbnb management service like Houst to help you do all the heavy lifting while you can focus on other things.