As buy-to-let returns have been squeezed by tax reforms and foreign travel restrictions have renewed the appeal of UK holiday destinations, many landlords are turning to the short-term rental market in their hunt for better yields.
But critics are warning of the detrimental impact this trend is having on the affordability of long-term rentals and first-time buyer properties for locals, particularly the young.
Interest in holiday lets has grown significantly over the past year. The number of lenders active in this market has jumped from 14 in August 2020 to 26 today, while the number of products has more than doubled from 74 to 186, according to the latest data from Moneyfacts.co.uk.
Government must give councils powers to tax and regulate their local holiday-lets market appropriately
The expansion in product choice reflects lenders’ response to extra demand from landlords. Campaign group Generation Rent says one of the reasons for this is that landlords operating furnished holiday lets can still claim relief on mortgage interest, while those offering homes to long-term tenants have had their tax breaks substantially curtailed in recent years, creating an imbalance.
It says rents in Wales, Scotland and Southwest England have soared since the start of the pandemic as landlords switched their properties to short-term lets, reducing the supply of private rental homes.
Based on analysis of Zoopla listings, the group calculates that, in Wales, where there are many popular holiday locations, the cost of renting has risen by 26% from £144 a week in July 2019 to £181 a week this year.
Over the same period, the number of properties available to rent is down by 53% to 3,143.
In Scotland, rents are up by 24% over the same period and the supply of available rental properties is down by 28%.
Landlords should be encouraged to let properties out to local people rather than just trying to make as much rent as possible
In the Southwest, which includes tourist hotspots such as Devon, Cornwall and Dorset, rents are up by 23% and available long-term rentals are down by 49%. By contrast, rents in London are down by 17% from £718 a week to £599 compared with July 2019, with the number of listings up by 10% in the same period from 93,265 to 102,767.
Generation Rent director Alicia Kennedy says: “Self-catering accommodation plays an essential role for the tourist industry, but it is too easy for landlords to evict locals from their homes to make way for more lucrative holidaymakers. As a result, communities are being torn apart and businesses that serve tourists struggle to find staff.
“The situation is unsustainable. The government must give councils powers to tax and regulate their local holiday-lets market appropriately, but should also act directly to take tax perks away from holiday lets so we keep homes available for people who need one.”
It is too easy for landlords to evict locals from their homes
However, rather than levelling the playing field by removing perks for holiday lets, landlords of long-term rentals, unsurprisingly, would prefer that their previous tax reliefs were restored.
National Residential Landlords Association chief executive Ben Beadle says: “Demand for long-term homes to rent is outstripping supply. The only losers in all this are tenants struggling to find a home.
“The government needs to do much more to ensure it is viable for landlords to remain in this market. This needs to include tax measures that encourage investment in long-term rentals, including reversing the decision to restrict mortgage interest relief, which does not apply to holiday lets; providing greater certainty when it comes to energy efficiency measures for the sector; and reform of the benefits system to ensure it enjoys the confidence of landlords and tenants.
“Likewise, action is needed to tackle the Covid rent debt crisis.”
Your Mortgage Decisions director Dominik Lipnicki believes that interventions may be necessary in order to secure affordable housing in holiday hotspots.
He says: “I have always thought that there should be more localised controls in certain areas, not just on investors but also on second-home owners. So many of the young people who were born and bred in beautiful places like Cornwall are having to move in with their parents or move away because they cannot afford to rent or buy, and that is not right.”
Demand for long-term homes to rent is outstripping supply
Lipnicki says this can result in the age of a local population shifting upwards because only those who bought decades ago can afford homes.
He adds: “Landlords should be encouraged to let properties out to local people rather than just trying to make as much rent as possible. There is a balance to be struck and we don’t necessarily want to live in a world where rents are controlled by the government, but I think if we just let it carry on it will only get worse.”
However, for Property Master chief executive Angus Stewart the problem is not a new one. He recalls the arson attacks on English-owned holiday homes in Wales during the 1980s.
He says: “The government needs to accelerate its strategy for creating affordable homes, which has been sitting there in abeyance for many years. I don’t think anyone votes for a tax increase and I don’t believe it solves the problem.”
Stewart warns that a clampdown on the holiday lettings market could push some landlords under the radar, meaning they would no longer pay tax on their earnings and may not bother to meet the safety standards that are required through more official channels.
