Why is the sun shining on the UK’s furnished holiday let market?

On Monday, this guest piece from Iain Brown at Aria Resorts analysed why the UK holiday property sector is attracting huge investment interest, while last week we explored the growing strength of the staycation market – with Cornwall a particular hotbed.   

And now Spot Blue International Property has claimed that conditions are ideal for the UK’s furnished holiday let (FHL) market to surge in 2020.

The property agency said that the sector has become increasingly popular in recent years thanks to the effects of Brexit and the increasingly regulated and tax-unfriendly buy-to-let market.

FHLs are classified as a commercial operation, which means they have tax advantages over traditional buy-to-let as they are not subject to the same tax rules as typical properties rented out privately in the residential sector.

In the last few years, traditional buy-to-let landlords have been faced with a number of major challenges, including higher stamp duty, stricter lending criteria and the phasing out of mortgage interest tax relief (which takes full effect from April 2020).   

Investors, spooked by the current unsettled political climate and fears that a buy-to-let investment could become more of a financial burden than an asset, are as a result seeking out other property sectors where they can protect their capital and grow their pension pot. For many, Spot Blue argue, that means a furnished holiday let property, purchased with the guidance of a financial adviser, which can prove to be an attractive alternative.

“Buy-to-lets are a perennial political football and under current legislation they've lost some of their shine, not helped by the slowdown in the UK housing market,” Julian Walker, director at Spot Blue International Property, said. “And depending on the results of the imminent election, there could be the threat of a Right to Buy scheme disrupting the market.”

“Meanwhile, the upturn in UK tourism and staycations, fanned by the consequences of Brexit, is laying the foundations for an exciting and buoyant FHL market,” he added. “An increasing number of new parks and developments are coming to market around the country, with developers careful to ensure their properties tick all the requirements for a successful FHL property.”

Why should people invest in this sector?

The key benefits of FHLs, which are run as businesses, are that they come with capital allowances, which can be applied to furnishing the property, while most expenses associated with running the property are tax deductible.

What’s more, profit can be used for pension contributions, capital gains tax is low, and most will qualify for relief on business rates while at the same time being exempt from council tax.

In order to qualify as an FHL, a property must meet certain conditions governing furnishing and the minimum number of days it is made available for lets and physically occupied by paying guests each year.

“Others advantages are that mortgages are available for most FHLs, including for the newer modular homes,” Walker continued. "Not forgetting that developers offering new custom-built homes are using eco-friendly energy-saving materials and building methods.”

Spot Blue itself is promoting a range of FHL developments where qualifying buyers can choose between a three or five-year assured rental agreement.

The developer, a pioneer of low-carbon footprint building practices, is offering a 7% annual net return, with rental income paid quarterly. Spot Blue says that for investors with the appropriate financial status, this represents an appealing hands-off investment proposition.

One of these developments, located on the unspoilt coast of North Yorkshire, offers new two-bedroom country lodges, which come fully furnished and with access to on-site leisure amenities and the local beach. They are available from £174,950.