Why are more Brits turning their second homes into holiday lets?

Recent analysis has suggested that upwards of 11,000 second homeowners in England have ‘flipped’ their holiday homes to turn them into holiday lets since the start of the pandemic.

The research by property advisers Altus Group claimed that the number of holiday homes trading as commercial holiday lets had spiked by more than 20%, especially in tourist honeypots like the south west and south east.

What does ‘flipping’ actually mean?

‘Flipping’ is a confusing term because it can mean a variety of things in different contexts, but in the case of second homes it refers to the practice of getting a property re-designated as commercial rather than residential. 

To do this, you need to officially turn it into a holiday let. This normally means making it available for bookings for at least 140 days a year.

There are a variety of reasons why people would do this, and some are directly or indirectly connected to the coronavirus pandemic – hence the increase.

Lower taxes for holiday lets

One reason to convert a second home to a holiday let is that owners may pay less tax due to a loophole in the rules. A commercial property such as a holiday let pays business rates rather than council tax, but if the rateable value (ie, what you’ll get from renting it out during a year) is less than £12,000 then you’re exempt. Properties under £15,000 get discounts on a sliding scale.

Some rural councils complain that they lose out on huge amounts of revenue this way, and that many of the homes designated as holiday lets are only rented out occasionally to family and friends. One council claimed last year that a fifth of the ‘holiday lets’ in its area were in fact just second homes that were never really rented out.

In some ways, successive councils and governments have made a rod for their own back by levying higher council tax on second homes. This seems like it would be a no-brainer in principle, but paradoxically it may have harmed revenues by encouraging owners to look for loopholes. 

Coronavirus grants

In 2020, as the government announced its various coronavirus relief grants, there were winners and losers. Among those who received a decent amount of support were people operating holiday lets. Many were eligible for a one-off grant of £10,000 aimed at helping small businesses survive the pandemic.

When this was announced last April, many councils and commentators were concerned that among those being offered the grants would be people who had flipped their second home to a holiday let for tax reasons but actually rarely let it out. This would have been hugely unfair, given the number of people who fell through the cracks in the grants programme and were told to rely on Universal Credit.

Of course, it’s very difficult to know whether these fears were actually grounded. Research from Altus at the time suggested that more than 50,000 properties were eligible for the grants, but there’s no way of knowing how many of those were holiday lets in name only, and indeed whether the owners of such properties actually applied for the payments.

It’s important to remember that lots of holiday lets are genuine businesses that were badly hit by lockdowns, and also that the line between second homes and holiday lets can often be a fine one. Many owners enjoy their properties during their own holidays each year but also rely on the income from short-term rentals. 

The domestic holiday boom

The most obvious reason why people would turn their second homes into holiday lets is because domestic holidays have become wildly popular. 

In an era where international travel means navigating complicated sets of rules, enduring airport purgatory and shelling out hundreds of pounds on tests, it’s not really a surprise that people are opting for a nice cottage on the beautiful Cornish coast instead.

As seaside towns across the UK have been flooded with visitors, prices for short-term lets have spiked accordingly, and second home owners have quite reasonably seen the chance to generate some cash out of the property when they’re not using it themselves.

The Stamp Duty holiday and ‘accidental savers’

It’s a good bet that more second homes are getting flipped because there are more second homes full-stop. 

While many of those who were less financially secure at the start of the pandemic have struggled over the past year and a half, a lot of people have inadvertently found themselves better off. These ‘accidental savers’ were those with stable jobs or other steady incomes, who found their expenses unexpectedly slashed. Commuting costs melted away, and with hospitality and entertainment venues shuttered there was nothing to spend money on except wine deliveries and paddling pools off Amazon.

Emerging from lockdown, bank balances were unexpectedly healthy and the Stamp Duty Holiday offered a good opportunity to invest in a holiday property that could provide both pleasure and income. Dedicated holiday cottage management agencies and sites like Airbnb make it easier than ever to rent out a second home part-time on your own terms, and it’s not surprising that buyers have been looking to make some money from their new place when they’re not enjoying it themselves.

The knock-on effects

The familiar refrain from locals in coastal and rural areas is that holiday lets and second homes drive up house prices and strip away the sense of community. There can be truth to both of these claims, but it’s also over-simplifying a complex picture.

It’s true that house prices in rural areas are becoming inaccessible for many locals, but it’s not just second homes that have been causing this over the past year or so. It’s also local people moving to larger properties and workers relocating from more urban areas as their jobs go remote. The UK’s rural and coastal communities face all kinds of challenges including ageing populations, lower wages, poorer public services and long-term under-investment in infrastructure, so it’s not entirely fair to lay the inequality entirely on holiday lets and second homes.

What’s certainly unfair is that those wealthy enough to own a second property should be avoiding council tax when local renters are paying theirs. But then that’s one of the key aspects of taxation – no-one wants to pay more tax than they have to, and if there’s a loophole then people are bound to use it. What’s needed is a more robust set of rules to make sure that second home owners make their proper contribution to local communities, and the Treasury has already suggested that change is on the cards.

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