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The serviced accommodation boom has made second home sales surge by 20% as homeowners take advantage of generous tax breaks and rental price booms in popular holiday hotspots.
What are the factors influencing the second home market and what does it mean for investors? This blog post explains.
What is a second home?
A second home is a property that you own and use, but not as your primary residence. Second homes can include holiday lets, serviced accommodation or rental properties.
What do you need to consider when buying a second home?
There are a number of things you need to consider when buying a second home.
Firstly, you’ll need to think about the location and whether it meets your needs. Do you prefer rural or urban settings? Are there any local amenities nearby such as shops, restaurants and cafes? What type of investment return do you expect and what kind of rental income can you expect?
Secondly, consider the tax implications. Does the property qualify for small business rate relief? Do you need to pay capital gains tax when selling it on? What about stamp duty and other costs associated with buying a second home?
Thirdly, think about the practicalities of being a landlord. What kind of legal obligations do you need to fulfil? How will you manage the property and what are your responsibilities?
What are the advantages of serviced accommodation?
Serviced accommodation has become increasingly popular in recent years, due to the generous tax breaks and rental price booms in popular holiday hotspots.
As serviced apartments are self-contained units, they offer more privacy than other types of rental accommodation such as hotels or guesthouses. They also offer greater flexibility for owners – serviced apartments can be serviced or non-serviced and let for short-term stays or longer periods.
Serviced accommodation also offers a higher return on investment than other kinds of property. With serviced apartments, you’re able to charge a premium rate for nightly stays and benefit from additional income through add-ons such as maid services, concierge services and more.
What are the trends in the serviced accommodation market?
According to The Telegraph, an extra 46,900 of second homes and buy to let properties were sold in 2021-22, taking the total to 284,100, according to data released by HM Revenue and Customs.
Second homes and buy-to-lets accounted for a quarter of residential property sales and 45% of the Treasury’s stamp duty receipts.
The 20% increase was fuelled by a boom in staycations and the stamp duty holiday.
Buyers of these properties must pay a three percentage point surcharge on top of their stamp duty bill. The amount of extra tax paid by second homeowners and buy-to-let landlords rose by 35%, or £1.2bn, to £4.6bn.
Stamp duty receipts for all residential properties jumped by 69% between the 2020/21 and 2021/22 financial years, from £6bn to £10.2bn, according to HMRC.
Properties worth above £2m and below £250,000 were the most popular among those buying additional homes, HMRC found. More than half (57%) of second homes were purchased for less than £250,000.
Why is there great demand for serviced accommodation?
Neal Hudson, of the analyst BuiltPlace, said the surge in second home and buy-to-let sales was driven by the stamp duty holiday that was in effect in 2020 and 2021. This helped to push house prices to a record high.
The tax break, which initially raised the nil-rate stamp duty band in England and Northern Ireland from £125,000 to £500,000, was in place between July 2020 and June 2021. This meant that those buying additional properties still had to pay the surcharge on the first £500,000 of a property’s price, but their tax savings were considerable compared with before the pandemic.
From July to September 2021, there was a three-month taper period, in which the nil-rate band came down to £250,000.
Mr Hudson said HMRC’s data reflected a rush of second home buyers and buy-to-let investors buying properties before taxes went up.
He said: “A lot of them viewed it as an optimum time to save money.”
He added that a boom in staycations also fuelled the increase in second home purchases.
The region with the highest proportion of second home sales was London, at 29%.
What does the serviced accommodation trend mean for property investors?
The analysts Savills have predicted that serviced accommodation will continue to be a popular option in the coming years. They said: “Overall, serviced apartments are increasingly becoming an attractive alternative to hotels and guesthouses, offering guests more flexibility and privacy at possibly lower prices – making them a viable investment opportunity for landlords.”
It seems serviced accommodation is here to stay and is a great option for investors looking to benefit from the second home boom. With serviced apartments offering greater flexibility, privacy, value and return on investment than other kinds of property, they are an attractive option for those considering taking the plunge into buy-to-let or purchasing additional properties.
This serviced accommodation boom has been fuelled by the stamp duty holiday and the surge in staycations, so it remains to be seen whether this trend will continue once taxes return to pre-pandemic levels. Regardless, serviced accommodation is an increasingly attractive option for investors looking to make a return on their property investments.
Touchstone Education CEO Abi Hookway said: “The serviced accommodation boom which started during the pandemic shows no signs of slowing. The opportunities for commercial properties, which were incentivised in March’s Spring Budget, means that there is no better time to invest in second homes and holiday lets.”
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