Short-term rentals have been popular for their high returns , but they’re facing new scrutiny. The announcement of the Chancellor’s Spring Budget Speech has led to a re-evaluation of short-term rental properties, prompting questions about their comparative value against long-term rental properties.
Spring Budget Changes Affecting Short-Term Rentals
The Spring Budget speech is… The recent announcement implicated that there will be notable changes for holiday and short-term let property owners. The Chancellor has decided to remove tax breaks for these owners, cutting off around £300 million in tax relief.
This initiative aims to address housing shortages in coastal regions by reducing the conversion of properties into holiday rentals, a trend that has been impacting the availability of housing for local residents. The government prioritises the interests of local communities over those of property investors.
This change could deter investment in holiday rental businesses, potentially slowing the rate of property conversions and reducing the availability of short-term rentals in tourist destinations. Landlords with significant investments in holiday lets will need to adjust their investment strategies and profit expectations in light of the new regulations. This adjustment might include diversifying into eco-friendly and affordable housing projects.
Short-Term Rentals: A Re-evaluation
In recent years, many landlords have been drawn to short-term lets (STLs) due to the potential for higher profits and greater control. While short-term lets can be a good choice for some, it’s crucial to thoroughly consider the advantages and disadvantages in comparison to traditional long-term tenancies. Understanding the key factors, such as high utility costs, new laws, and complex lease terms, is essential before deciding, as these can make short-term rentals a riskier venture.
Comparing Short-Term and Long-Term Rentals
Short-term rentals, also known as holiday lets, offer flexibility for landlords and often have higher yields but have less predictable income than traditional long-term rentals. While long-term rentals provide consistent income and more tenant protection, eviction for non-payment can be time-consuming and costly. However, rental insurance can offset this risk by covering unpaid rent, which overall ensures that landlords can cover mortgages without concern. With assured rent, typically lower void periods and tenants that often take better care of the property than they do in short term lets, long term lets are the safer, more fool proof option of the two. Ultimately, the choice between short-term and long-term rentals depends on the landlord’s preferences.
Understanding True Costs in Short-Term Rentals
When considering short-term let options from agents, it’s crucial to closely examine the costs and fees that are included as they are often overlooked by others. In short-term lets, landlords are responsiblefor all utilities including council tax, and various management and platform fees, unlike with standard tenancies. These expenses quickly accumulate, leading to significantly higher monthly costs for the property compared to longer-term rentals. It’s not unusual for management fees on short-term lets to exceed those of standard agreements.
Here’s a brief overview of potential expenses:
– Platform Fees: Charged by listing services (as a percentage).
– Management Fees: Usually 15% to 20%.
– Council Tax: Varies widely by location.
– Utilities: Internet, water, electricity, and gas (if used).
– A TV License: For those Landlords who provide a TV
When agents promise high returns, it is important to consider how they’ve calculated these projections. Did they consult a short-term let specialist, or are these estimates based solely on their own estimates? Asking this question is always advisable..
Investor Considerations for Short-Term Rentals
1) Costs can rise unexpectedly, often because they’re tied to unpredictable usage, making them hard to budget for, especially with varying occupancy rates and the differing utility usage by clients. The recent sharp increase in gas and electricity costs in Europe has added pressure to short-term rentals.
2) Predicting vacancy rates is challenging due to their seasonal nature. This is in turn complicates the management of mortgage payments and can lead to financial imbalances throughout the year. The frequent tenant turnover in short-term rentals accelerates property wear and tear, which leased to increasedmaintenance expenses.
3) Legislation around short-term rentals is a pressing issue, with local authorities and politicians in the UK closely monitoring the situation. The Scottish government is spearheadingchanges, and it seems England and Wales will most likely follow. Central to these discussions are proposals to impose limits on the duration for which a property can be rented out on a short-term basis, with certain areas in Scotland facing more stringent controls.
Conclusion
While short-term lets can be riskier due to possible regulations and increased costs, they also offer the potential for higher returns. Long term tenancies give the landlord a stable income and after the Spring Budget announcement, seem to have become even safer in comparison to short term lets than they were before.
