Why the holiday let property market is about to collapse

·4-min read
holiday let market collapse international travel
holiday let market collapse international travel

The British holiday let market could be about to buckle as tourists take their business abroad and councils eye higher tax rates.

Holiday home owners have enjoyed bumper bookings since the pandemic shut down foreign travel and investors scrambled to cash in on unprecedented domestic demand.

But the staycation boom is about to end, as a return to foreign travel hits at the same time a surplus of holiday lets will dilute income.

The lure of international holidays

Foreign travel bookings have exploded since most countries opened their borders and the UK removed arduous testing requirements.

Flight searches for this summer were up 21pc week-on-week, according to travel booking site Skyscanner, as Britons shunned the staycation for warmer climates.

Summer bookings for holiday lets in Greece are 227pc higher than last year, while demand for accommodation in Portugal and Croatia has jumped 198pc and 170pc, said AirDNA, a data company.

Meanwhile, bookings in the UK are just 13pc higher than last summer.

Appetite for holidays further afield has returned too, with bookings to Costa Rica, the Maldives and Mexico more than doubling compared to demand in 2019, Skyscanner found.

Naomi Hahn of the company said: “Every time international travel restrictions have eased over the last six months we’ve seen travellers immediately respond.

“As we head into the peak summer holiday season pent up demand is converting into strong booking numbers."

The end of the staycation?

A recent survey of 1,000 adults by Skyscanner found almost half would prioritise international travel more so than pre-pandemic and most were more hopeful of holidaying abroad in 2022 compared to last year.

Less demand for accommodation in the UK will mean more vacancies and a risk of a surplus supply of holiday homes, spelling bad news for investors.

Experts have warned that those who recently bought holiday lets as an investment may start to sell up.

Jonathan Cunliffe, who runs an estate agency in Cornwall, said: “British holiday homes have been booked up every week for the past two years, but no one could reasonably expect that to continue.

“Those who bought in an area because perhaps they grew up there are likely to keep the property, but some who bought purely as an investment and because they couldn’t go abroad may start selling up.

“We are already seeing an increased supply of these homes back on the market; it’s due a rebalance after two years.”

A drop-off in holiday let investments

Falling demand for staycations has already made investors more cautious. Joe Stallard, of House and Holiday Home Mortgages, a broker, said there was still appetite among buyers for holiday lets, but it was nothing like that seen in the previous two years.

“Last year holiday lets were selling before they even reached the market. You had to be in with an agent to even get a look in.

“But buyers now aren’t having to fight each other in that same way and it’s easier for them to get the property they want,” said Mr Stallard.

The threat of tax rises

Income from back-to-back bookings has helped cushion the blow of a three percentage point stamp duty surcharge on second homes, introduced in 2016. But a looming crackdown on investors by councils could push them from the market for good.

This week the Queen’s Speech confirmed new powers for local authorities which could see them double council tax for second homes not in use or let out for at least 70 days per year.

The 100pc tax premium could prove the final straw for some investors, costing them thousands of pounds more in tax bills each year. In Cornwall, for example, a double council tax bill would mean an owner of a "band D" property would have to pay an extra £2,109 per year. A band H property would face a jump of £4,218.

Mr Cunliffe said: "Holiday let owners have gradually been squeezed by taxes in the last 10 years and we saw quite a few second homes dropping away before the pandemic hit.

"Investment then spiked in lockdown and people shrugged off the extra costs associated with second home ownership because they felt they needed one, because they couldn't go abroad, or wanted to invest in the boom.

"But now international travel is back on the cards, many will decide they don't need the property anymore."

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