Holiday let rules and regulations for landlords
Thinking of letting a holiday home or turning your long-term let into a short-term let? Property expert Kate Faulkner explores the pros and cons of short-term letting and the rules you need to follow.
- What is a short-term let?
- What are the pros of running a short-term let?
- What are the cons of running a short-term let?
- What is a long-term let?
- What are the legal requirements for letting a holiday property?
- Holiday let rules & regulations
- How to turn your buy-to-let into a holiday home
What is a short-term let?
A short-term let is similar to a 'holiday let', where a property or room in a property is let for a short period of time, generally anywhere from one night to a few weeks. Guests are usually business travellers or tourists, and landlords are generally expected to provide fully-furnished, well-equipped, hotel-quality accommodation and services.
What are the pros of running a short-term let?
- You can achieve a much better pro-rata rental amount than with a long-term let. Even with the greater ongoing management costs, if you have good occupancy levels, you could achieve rents and yields that are 30% higher – and, in some cases, more.
- It gives you a holiday home. If there's a limit to the number of days you're allowed to let the property, a lull in demand, or you simply decide to keep some weeks free, you’ve got a holiday home for yourself. And if you’re able to keep the occupancy rates at a high enough level, it might not cost you anything for the time you’re using it!
- Bad tenants aren't there for long. If you do happen to get a bad tenant, you don't have to deal with ending an AST and going through an eviction process.
- 'Furnished holiday lets' have a favourable tax status. Among the various tax rules, one significant benefit to holiday lets versus buy-to-let is that you can still deduct the mortgage interest from your profits (as long as it is commercially let for at least 105 days in the year). That's because it's considered a business, rather than an investment. (As of the 2020/21 tax year, buy-to-let landlords can no longer claim mortgage interest as an 'allowable expense').
What are the cons of running a short-term let?
- Much more time-consuming than a long-term let. Much like a hotel, the property will need frequent cleaning and replenishing of supplies, such as laundry. If you have an agent managing it for you, this will be reflected in higher fees.
- Ongoing maintenance costs are higher. You've got the cost of regular laundry and cleaning services; kitchen and bathroom equipment and small appliances will periodically need replacing; higher traffic through the property means there will be more wear and tear for carpets, fittings and furnishings.
- Higher risk of voids. No matter how desirable your property, you're highly unlikely to achieve full capacity.
- Very reliant on a buoyant economy. If demand from business or leisure travellers declines, that's instantly reflected in the short-term let market. The coronavirus crisis for example had a big impact on short term lets.
- You're responsible for paying all the bills. Whether the property is let or not, you still have the cost of council tax, utilities and services (such as TV and internet), on top of any mortgage payments.
- Mortgage rates are higher. If you require a mortgage, you’ll need a specialist product. The interest rates are higher than for buy-to-let mortgages because
- a) the relatively small number of lenders in the market means there’s a lack of competition,
- b) the risks associated with short-term lets are greater.
While the number of 'cons' might be higher, many landlords consider the 'pros' to be good enough to make short-term lets a very worthwhile investment.
What is a long-term let?
At the other end of the spectrum, a long-term let is generally regarded as anything over six months. If you need a mortgage, it is most likely to be a buy-to-let product and you should have a formal Assured Shorthold Tenancy agreement (AST) between you and your tenant. Although if you are letting your home, some lenders will allow you to let via your existing mortgage, but you must seek written permission.
Long-term lets are popular with landlords because they provide a regular monthly income which can cover all costs and generate a monthly profit on top. Assuming the property increases in value in the long term, you then also benefit from capital growth down the line.
With the average private tenancy now lasting over four years, the industry controlled by more than 400 rules and regulations, and specialist insurance available to cover you for almost any eventuality, it’s a relatively low-risk form of property investment.
What are the legal requirements for letting a holiday property?
You must make sure that you're legally able to let your property on a short-term basis and that you're properly protected. Three key things you need to address:
1. Does your mortgage lender allow it?
The level of risk attached to short-term letting is considered too high for most mortgage lenders. The more people that are using a property, the greater the risk of damage, and there is a high chance of the property being left empty for extended periods of time. So, if you currently have a mortgage on the property you’re planning to let, you may need to apply for a new one.
- Buy-to-let mortgages. The vast majority of BTL mortgages stipulate that the property must be let on an Assured Shorthold Tenancy agreement (AST), so short-term lets will not be permitted.
- Residential mortgages. Most of the biggest lenders - including Barclays, HSBC and RBS – tend to rule out short-term letting, although some, such as Santander and Nationwide, may permit it, but there will be strings attached.
- Specialist short-term let mortgages. Also known as 'holiday let' mortgages, these are still a niche market. Partly because of the lack of competition and partly because of the increased risks associated with short-term lets, the interest rate is likely to be higher than for a buy-to-let mortgage. You may also need a higher deposit than you would for a buy-to-let or residential mortgage on the same property.
In short, you must speak to either your lender or an independent mortgage adviser to find out what financing options are available to you.
2. Does the lease permit it?
If the property is leasehold, the terms and conditions might prevent short-term letting, so check your lease and speak to the freeholder.
3. Do you need planning permission?
Each local authority in England has the power to set their own policies for planning permission for ‘change of use’ of a property, as well as impose their own licensing schemes. In London, for example, homeowners can legally let a property on which they pay the council tax themselves, for up to 90 nights a year without planning permission. If they want to exceed the 90 days, they must seek permission.
In Scotland, from Spring 2021, local authorities will be able to implement licensing schemes and designate control areas, within which landlords will have to secure planning permission if they want to let a whole property on a short-term basis.
So, if you're thinking of offering short-term lets, you must speak your local council housing department to find out whether that's possible and what steps you need to take, to make sure you comply with the law.
Holiday let rules & regulations
The key rules and regulations that apply to holiday/short-term lets:
- For a property to count as a holiday let, it must be furnished and available for letting for at least 210 days a year. That means you can use it yourself for up to 22 weeks.
- To benefit from the favourable 'furnished holiday let' tax status, the property must be commercially let for at least 105 days in the year. (So, if your property is in London, you will need to secure planning permission.)
- Any single let must not be for longer than 31 continuous days. If it is, you must have a formal tenancy agreement, which will give your guest the same rights and responsibilities as a buy-to-let tenant. It may also affect your tax status and you may be violating the terms of your mortgage.
- Guests staying in a holiday house have no right to remain and they must leave the house at the end of their holiday.
- If you provide a television, you’ll need a specific Hotel and Mobile Televisions Licence.
Health and safety
- General health & safety - You have a duty of care to your guests, so make sure you carry out a thorough risk assessment for the whole property and its grounds and take reasonable steps to minimise any risks and hazards. It's also advisable to have an information file for the guests, with instructions on how to safely use appliances and facilities.
- Gas safety - You must ensure that all appliances, fittings, flues and chimneys are safely maintained. A registered engineer must carry out an annual gas safety check on each gas appliance and you need to retain the record for two years.
- Electrical safety - All electrical equipment supplied must be safe to use and, if supplied since January 1995, marked with the appropriate CE symbol. Although there’s no specific legal requirement, we'd highly recommend you have the electrical installation inspected and tested every 5 years, by a qualified electrician who's a member of NAPIT, or NICEIC. We'd also suggest you have all electrical appliances PAT tested annually.
- Fire safety - You must carry out a fire risk assessment to identify any potential hazards, install a smoke alarm on each floor that's used as living space and ensure that all upholstered furniture complies with the current requirements for fire resistance. Bear in mind your insurance provider might require you to take further steps, e.g. have the chimney swept annually.
- Carbon monoxide detectors - You are legally required to fit a CO2 detector in rooms containing a solid fuel burning appliance, e.g. log burner or open fire. As gas appliances can also emit carbon dioxide, we'd advise that you also put a detector in any rooms that have gas or oil appliances, e.g. oven or boiler.
- Employers' liability insurance is a legal requirement if you employ anyone at your holiday home – i.e. if you have a host, housekeeper, cleaner, gardener.
- While it's not a legal requirement, you may want to look into public liability insurance, in case a guest has an accident in the property and pursues a claim against you.
- If you have a mortgage, your lender will require you to have building insurance.
How to turn your buy-to-let into a holiday home
- Make sure you have the right mortgage. Speak to your current lender to find out whether they can still finance the property and offer you a suitable product. If they can't, then speak to an independent mortgage adviser or broker to find out what options are available to you.
- Check with the local authority. Speak to your local council to find out what their policy is regarding short-term lets and whether you need to apply for planning permission or a licence.
- Speak to local experts. Talk to companies that specialise in short-term lets, including the local tourist office and find out about demand, what standard of accommodation you should be providing and, if you don’t plan to manage it yourself, what kind of service they could offer you.
- Search listings online. See what kind of nightly/weekly charge is achievable and check out the competition to get a feel for how you should furnish and equip the property.
- Furnish the property. You will need to provide furniture, soft furnishings, appliances, cutlery, dishes & glassware, linen and towels. Think about what you would expect in a nice hotel or holiday home.
- Install services - broadband, TV, etc.
- Research specialist insurance.
- Make sure you comply with all health and safety requirements.
- Put in place a system for managing and maintaining the let. If you live nearby and have the time, you may be happy to handle everything yourself. However, frequent changeovers can be hugely time-consuming, so it's well worth considering using a specialist company that can administer everything professionally and deal with any guest queries and issues. Make sure they are up to date with the latest legal requirements, so can spot anything in the property which may need checking or updating.
- Market the property. If you're handling the marketing yourself, make sure your listing has plenty of good-quality photographs, a video tour and a well-written, comprehensive description of what you have on offer.
- Ensure you comply with your tax obligations. Either engage a specialist holiday let tax expert or contact HMRC yourself to make sure you understand your tax status.
Finally, if you do choose to offer short-term lets, consider joining a professional organisation such as The Short Term Accommodation Association (STAA), a trade body for the sector that helps its members stay on top of developments and operate within the rules. Membership gives you:
- A weekly newsletter
- Up-to-date host guidance
- Free quarterly webinars with policy experts
- Access to an affiliate marketplace of suppliers
- Access to an accreditation scheme (at a discounted rate) that gives your property a 'kitemark' to help add credibility and boost bookings.
Kate Faulkner is one of the UK's leading, independent property experts and regularly features in major newspapers, on the BBC and ITV, as well as regularly co-hosting the Property Show on LBC.