Your Guide: Short-Term Lets & The Spring Budget
The latest Spring Budget has left the property market underwhelmed with most property professionals finding Jeremy Hunt’s changes short of their expectations.
The property market needs more motivation to stimulate the economy, and many expected the Chancellor would use this budget to announce 99% mortgages. Instead, he announced a modest drop in Capital Gains Tax alongside similarly smaller changes.
However, is this Spring Budget a damp squib or is it an indication of a shift in the market? A shift that looks to empower local councils and bring more properties to local communities by addressing concerns over short-term lets?
Join us as we look at some key points in the Budget and how this modest report shows signs of a shift to more long-term rentals and house sales.
What stood out in the Budget
Capital Gains Tax
Capital Gains Tax is an area that has seen a small drop from 28% to 24%. Traditionally, a reduction in Capital Gains is an effort to stimulate sales transactions. This shift and a reported steady rise in buyer intent could lead to more homes entering the market.
However, this cut is smaller than anticipated, and many have shrugged in response, but this change coupled with other changes could signal a change in the types of properties sold, and let throughout the country—namely, furnished holiday lettings.
Furnished Holiday Lettings
The second factor worth considering is the rule change of the tax advantages given to Furnished Holiday Lettings. This change will affect property owners who own several Airbnb properties or similarly let private homes (The Plumb Guide, VRBO, Booking.com and others).
This, alongside growing perceptions that hotels may be more convenient and affordable (especially for smaller groups), could lead to property owners questioning the long-term future of short-term lets.
A Perfect Storm for a Market Shift?
This brings us to what could be a significant evolution in property type as property owners, particularly those in less competitive markets with lower occupancy rates look at alternative models to short-term lets.
Some owners may look to move to long-term lets, to appeal to local communities, and ensure they get regular income, or they may look to sell properties and reinvest their money elsewhere. In these cases, surveys will become key to understanding the condition of buildings and receiving accurate valuations.
To identify which regions could be most affected, we’ve investigated the latest data on short-term lets to see where opportunities for sales and long-term lets may be.
What does the UK short-let landscape look like?
The most recent data from ONS (Q3 of 2023), shows that the United Kingdom had a combined total of 28,876,830 guest night stays.
A guest night stay for these purposes is The number of nights spent during a stay, with a night counted per individual member of the visiting group.
So for example, if there is a group of 4 people staying in a home for 2 nights, it counts as 8 guest nights. Breaking down the stays in this way evens out smaller and larger properties and provides a more general market picture.
Of this total, England accounted for 74.8% (21,598,290), Scotland 14.9% (4,301,420), Wales 7.7% (2,217,030), and Northern Ireland 2.6% (760,080). The top local authority units also went along with what you might expect with Cornwall having the highest share of guest nights (1,586,060) followed by the City of Edinburgh (1,157,180), and Westminster (871,900).
This data paints a picture where coastlines, AONBs, and cultural and historical centres are the obvious choices for these types of properties. Property is all about location and it’s clear to see that areas with less established appeal such as the North East and the Midlands sit at the bottom of this list.
These numbers don’t show the whole picture though, with Visit Britain highlighting a reduced demand for short-term lets in the UK in the most recent data. Compiled by Lighthouse, these figures track Airbnb, Booking.com, Vrbo and Tripadvisor. They show that where 2022 saw improvements in pre-COVID occupancy rates, 2023 lagged between -1 and -6 percentage points behind (Page 14 of the PDF – Short Term Rentals trends from Transparent).
This reduced demand for holiday lets in the UK, coupled with the holiday letting tax rules and planning changes may persuade owners of short-term holiday lets to sell underperforming properties or convert them into safer, longer-term rentals.
Underperforming locations for change
To help identify which counties could see the most significant change, we investigated Visit Britain’s data on the most visited towns and other areas for domestic overnight trips and day visits in England.
This data set covers two years (from October 2021 to September 2023). For our purposes, we looked exclusively at domestic overnight trips and worked out the ratio of spend (value) and trips (volume) relative to the properties available in an area (base).
Our Findings:
We discovered that some of the best-performing locations tally with the data above with areas such as the Isle of Wight, Cornwall, Oxfordshire, Devon, and Greater London in the top five for spend per base size. This shows how lucrative holiday lets can be in these areas.
At the other end of the scale, we saw the North East and Midlands perform the worst with the Tees Valley and Shropshire the least lucrative. The bottom five were rounded out with South Yorkshire, Cambridgeshire, and Berkshire.
What this tells us is that short-term let properties in the bottom five may be the first to make the shift as property owners try to make their portfolios more profitable with the new Spring Budget.
The increase in purchasing sentiment (predicted in the February 2024 RICS Residential Market Survey) across the market could help further drive owners to sell with the survey findings stating:
“Feedback points to an emerging more positive trend in buyer enquiries and new listings.”
Alongside value, we also looked at occupancy to see how many nights were booked relative to the size of the property base. This is where we saw some change from the above as the top five for occupancy differed from the most lucrative.
County Durham had the highest number of trips by base size with the Isle of Wight in second, Dorset third, and East Sussex and Lincolnshire completing the top five.
The South East and South West continue to do well, both in occupancy and potential earnings which is unsurprising given the natural attractions these regions boast.
What is interesting, however, is County Durham outperforms southern areas as the winner for the number of trips by base size.
At the bottom end, we see Shropshire perform the worst for domestic overnight trips per base size followed by Bristol/Bath, South Yorkshire, Cambridgeshire, and Greater Manchester.
Shropshire, Cambridgeshire, and South Yorkshire are in the bottom five for both lists and could point to areas where holiday lets struggle to fill occupancy and squeeze the most amount out of each booking.
We can see that for total visits and the value and number of overnight trips, the Midlands and the North East are areas that tend to struggle. The South West, South East, and London, by comparison, are areas that perform well despite being more competitive.
This leads us to believe that we may see short-term lets in struggling areas become some of the first to either be priced for sale, or at least changed to long-term to guarantee income.
Which centres will be affected by this change?
Besides specific locations, it’s important to consider the type of areas that will see the most change. Visit Britain’s data also investigated the sentiment of overnight stays and found that most people look for breaks in cities which account for 40% of holiday lets. Towns are in second with 24%, and seaside and countryside locations account for 17% each.
This data is not limited to short-term lets however so no direct comparison can be drawn. Instead, this data highlights the areas where short-term lets may succeed as there is a demand for accommodation in these areas.
When considering the motives behind holidays, it’s easy to see how the facts and figures above line up. Areas that are more rural, or have smaller towns and cities will find their audience is smaller compared to the likes of people visiting London or Edinburgh and as such, are more susceptible to the changes in the Spring Budget.
What does this mean for short-term furnished lets?
The Spring Budget and Levelling Up point to a change in the market as the government looks to “strike a balance between giving local people access to more affordable housing while ensuring the visitor economy continues to flourish.”
These changes look targeted at addressing concerns over short-term lets taking over local markets and providing councils with more control over the types of properties developed in key areas.
In particular, these pressures could drive property owners to turn their properties into rentals for local communities or put underperforming properties on the market for sale.
Time will tell how platforms like Airbnb continue to work in UK hospitality, but given the Spring Budget changes and Michael Gove’s plans for short-term lets to require planning permission from their local council it’s clear to see that the direction is to prevent short-term holiday lets from consuming properties on the housing market and earmarking the housing stock in local communities for local use.
So even though the Spring Budget didn’t have the direct impact expected, it’s clear to see how the pieces are being put in place to free up homes through targeting furnished holiday lettings.
In doing so, we can go some way to addressing the housing crisis and ensure that homes are lived in, rather than left empty.
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