Property: Investing in a holiday home or buy-to-let in 2021

  • COVID-19 has boosted the UK property market’s outlook for 2021
  • Should I invest in a holiday home or a buy-to-let?
  • Staycations are here to stay but beware of tax relief clampdown
  • Pound Sterling (GBP) exchange rate outlook today

Despite the pandemic’s impact on the global economy and some of the UK’s largest sectors, Britain’s property market outlook remains optimistic.

After a challenging few months following the first national lockdown in March 2020, the UK property market witnessed a mini housing boom in the latter half of 2020, which is expected to continue into 2021.

Property experts attributed the sector’s turbocharged growth to Chancellor Rishi Sunak’s stamp duty holiday. As Mr Sunak has extended the tax relief until June-end, housing market activity and house price growth should remain well supported.

With most people confined to their homes under UK Prime Minister Boris Johnson’s “stay-at-home” orders, many buyers and tenants have reassessed their living priorities and sought out homes with large outdoor spaces in more rural locations.

While non-essential foreign holidays are not permitted until May 17th at the earliest, it seems that travel bans and travel restrictions have also increased the desire to purchase properties abroad.

Despite the obstacles presented by the pandemic, Brexit and fluctuating currency exchange rates, leading Spanish property expert Sean Woolley noted that British citizens still account for the most significant proportion of Spanish second home buyers .

Even when it comes to mortgage rates and availability, it’s unlikely that the base interest rate will rise or that buyer options will decrease as lenders gain more confidence with the global vaccine rollout well underway.

The mortgage market is highly competitive right now for residential property and buy-to-let properties.

So, for those wondering whether 2021 is an excellent time to make a property investment at home or overseas, the experts say yes. Not only is there an abundance of mortgage options available, but lenders are vying for business, making it easier to secure competitive mortgage rates and score a property deal.

However, we advise undertaking thorough research before you go ahead with the transaction to avoid any legal pitfalls and reduce the risk of poor property investment choices, especially if you’re purchasing a home overseas.

Now that the UK has departed the European Union and Britons can no longer enjoy free movement in the EU, many investors have turned to the UK’s holiday let market as an alternative.

UK property boom

UK housing market boosted by Brexit and COVID-19

There has been growing interest in the UK’s holiday let market recently as investors try to capitalise on rising demand for staycations due to ongoing uncertainty over international travel.

With staycations expected to become the next “thing” over the next few years as the world continues to recover from the coronavirus, property market experts predict an increase in holiday-let owners over 2021.

The rise in mortgage options and the introduction of 5% mortgage deposit deals has also increased the appeal of holiday homes, while buy-to-let residencies are becoming less attractive.

Holiday homes vs buy-to-lets: What’s the difference?

Unlike buy-to-let dwellings, holiday homes offer owners significant tax advantages as HM Revenue & Customs (HMRC) class’s holiday lets as businesses, tax on the property is lower as a result.

However, holiday let owners must ensure they meet specific criteria each year to be regarded as a business.

In the UK, holiday homes must be available to let for 201 days out of the year, albeit owners only have to let out the property for 105 days, with no single rent period exceeding 31 days. Holiday homes must also come fully furnished to qualify for the reduced tax relief.

In England, holiday let owners only have to offer their second home for let for 140 days in the year to claim the tax relief. Before now, the UK government rarely performed checks on properties to ascertain that the owner was fulfilling its legal obligations.

However, the UK government has announced it will legislate to tighten tax rules for second homeowners to prevent inactive owners from unlawfully reducing their tax liabilities.

That said, with approximately 60,000-holiday lets on the market and 96% of these properties qualifying for Small Business Rates Relief – meaning tax-free relief – it presents a significant investment opportunity.

Owners can also use their holiday home for up to 155 days in a year without compromising on tax relief. With the future of international travel still largely uncertain, holiday lets also offer owners a place to escape during the summer.


Staycation breaks expected to boom due to travel restrictions

UK domestic tourism is seeing a boost in 2021, with travel bans hindering Britons’ opportunity to holiday overseas.

According to the independent rental agency Sykes Holiday Cottages, bookings for the summer holidays have skyrocketed by 126% compared to the same period the previous year.

While airlines and travel agencies are also reporting increased demand for overseas travel, the latest announcement about introducing legislation that could delay trips abroad until July has increased caution.

Even if the Global Travel Taskforce’s report suggests that it is safe to resume travel from May 17th, some countries will only be accepting Britons that are fully vaccinated.

Furthermore, as some countries have less progressive vaccine rollouts, Briton’s may be required to quarantine upon returning from high-risk countries, which is a significant deterrent to overseas travel.

Even if the global travel industry streamlines the process with vaccine passports or returns to some form of normalcy over the year, it’s unlikely that demand for staycations will fade within the next few years amid public scepticism.

However, if you’re planning on investing for the next 10 to 20 years, demand for properties abroad is expected to rise as unemployment levels decline and countries return to economic growth.

Those seeking second homes or even primary residences will also benefit from incredible deals if they purchase property in 2021, as some property prices in some popular overseas tourist destinations are at extreme lows.

The latest figures from the Global Property Guide show that average housing prices in Spain are 23% below peak levels. However, according to expert advice, Brexit regulations will likely increase property taxes and stamp duty for non-EU property owners.

Also, be aware of fluctuations in foreign currency exchange rates when purchasing property abroad, which will impact your transaction’s overall cost.

Pound Sterling’s currency outlook

After the pound Sterling (GBP) has been one of the best-performing major currencies of 2021 thus far, it seems GBP has fallen out of favour with investors this week.

The UK currency has fallen from highs against the US dollar (USD), while the British pound to euro (GBP/EUR) exchange rate is barely clinging onto the EUR 1.16 level.

The British pound to US dollar (GBP/USD) pair is trading 0.1% higher on Thursday at USD 1.37, and further volatility could be in store amid a resurgent US dollar (USD).

Meanwhile, GBP/EUR is trading at EUR 1.161 as investors weigh up UK-EU Brexit tensions and the Oxford-AstraZeenca vaccine spat with positive UK economic data releases.

Traders will now be focusing on the outcome of talks between the EU and Britain over vaccine supplies and Friday’s release of UK Retail Sales data, which could trigger further headwinds for pound Sterling (GBP).