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The UK’s rental landscape is evolving as more landlords branch out into short-term lets.
A 2020 study by Propertymark found that one in four landlords has now taken the plunge into short-term letting, and the number of holiday lets in England has surged by 40% in just three years, according to an article on iNews.
The same study by Propertymark found that 12% of landlords with short-term lets have transitioned their properties from long-term to short-term lets, leaving an estimated 50,000 fewer options for long-term tenants. And it’s not stopping there. A further 10% of landlords said they were ‘very likely’ or ‘fairly likely’ to join the trend,
This shift towards short-term lets and platforms like Airbnb is reshaping the rental market. In this article, we will find out what factors are driving this trend and its implications.
What is a Short-term Let?
Whilst there is no universal definition of a short-term let, properties are usually agreed to be short-term lets if they offer stays that are anywhere between one night and six months long.
Short-term lets provide flexible accommodation for a variety of requirements. They are an ideal solution for newcomers who have not established long-term living arrangements or intend to reside in an area temporarily. Thanks to the rise of online platforms like Booking.com and Airbnb, they are also extremely popular with holidaymakers and tourists. Opting for a short-term let over traditional hotel accommodation is often more cost-effective without compromising comfort or convenience.
Short-term lets have become increasingly popular nationwide but are particularly prevalent in London and other tourist hotspots.
Why are More Landlords Embracing Short-term Lets?
The UK rental market has recently experienced a significant shift as many landlords turn their attention from traditional long-term lets to short-term rentals. Evolving regulatory landscapes and the appeal of benefits unique to short-term letting have partly fuelled this strategic change. In this section, we’ll explore the factors driving this trend and why platforms like Airbnb are becoming increasingly favoured among UK landlords.
Stricter Government Regulations for Long-term Lets
Escalating pressure from regulatory changes has spurred many UK landlords to reconsider their long-term rental investments. Recent governmental adjustments have rendered traditional long-term lets less profitable and appealing. These changes include:
- Removal of tax relief – In 2015, landlords took a financial hit when the tax relief on mortgage interest payments was restricted to the basic income tax rate.
- Additional stamp duty – The following year, an extra 3% Stamp Duty Land Tax was imposed on purchasing additional residential properties, deterring potential landlords eyeing the buy-to-let market.
- Tenant Fees Act – In 2019, the Tenant Fees Act banned landlords from charging most letting fees and capped the amount on tenancy deposits.
- Scrapping of ‘no-fault evictions’ – The Renters’ Reform Bill introduced the abolition of ‘no-fault’ evictions, making it more difficult for landlords to remove tenants.
These mounting pressures have caused many landlords to reassess their strategies. While some have exited the market, downsized their portfolios, or curtailed their future investment plans, others have decided to explore short-term let alternatives.
Advantages of Short-term Lets for Landlords
As increasingly stringent regulations dampen the appeal of long-term rentals, short-term lets offer some compelling advantages, making them an increasingly popular choice amongst landlords.
- Greater flexibility – Short-term lets make it easier and more convenient for landlords to access their properties as required for maintenance and repairs. If market volatility or personal financial circumstances create uncertainty, short-term lets allow landlords to sell the property at short notice.
- Potentially lucrative – Short-term lets often command higher rents than their long-term counterparts, particularly in popular tourist destinations or peak seasons.
- Fewer health and safety regulations – Short-term lets are not subject to the same stringent health and safety regulations as long-term rental properties.
- Rent-a-room relief – Resident landlords can earn up to £7,500 on their short-term let tax-free.
- The rise of online platforms – Platforms like Booking.com and Airbnb have simplified advertising and managing short-term lets. In 2021, there were over 500,000 Airbnb listings in the UK.
It’s clear why, given these advantages and the shifting regulatory landscape, many landlords are exploring the potential of short-term lets.
Drawbacks of Short-term Lets for Landlords
While short-term lets may present an enticing proposition for landlords, they also come with unique challenges. Here are some potential downsides landlords should consider:
Increased management responsibilities – Short-term lets require a higher degree of hands-on management. As tenants frequently move in and out, landlords find themselves responsible for regular property cleaning, organising tenant arrivals and departures, and answering consistent enquiries.
Inconsistent income stream – The income generated from short-term rentals can be less predictable than long-term ones. Furthermore, if your property caters mainly to tourists, demand can fluctuate with the seasons, potentially leading to longer void periods during off-peak seasons.
Higher risk of property damage – With a higher turnover of tenants, short-term lets could expose your property to increased wear and tear. More frequent usage and less familiar occupants could also lead to an increased likelihood of damage to the property.
Whilst short-term lets can offer landlords attractive benefits, they also require a significant commitment in management time and effort. Understanding these dynamics can help landlords make the best choice for their unique circumstances.
The Implications of The Rise of Short-term Lets
The shift towards short-term lets in the UK has far-reaching consequences, both positive and negative, influencing everyone from homeowners to tourists and even local economies.
The Upsides of Increased Short-term Lettings
- New opportunities – The advent of short-term lets has revolutionised the property market, providing landlords and homeowners with an innovative avenue for income generation. It enables them to diversify their investment portfolios, accommodating increasingly dynamic lifestyle trends and consumer preferences. Property owners can flexibly monetise their assets by tapping into this market and adjusting their leasing strategy based on seasonal demand, economic conditions, or personal financial needs. This flexibility and the potential for earning higher returns present compelling new opportunities for landlords and homeowners.
- More choices for tenants and tourists – Short-term lets have transformed the variety and flexibility of accommodation available to temporary residents and tourists. Unlike the often impersonal nature of traditional hotels, short-term lets provide unique, personalised spaces that cater to varied preferences and budgets. This opens up new possibilities for tourists seeking a more authentic or homely experience and provides more flexible, comfortable, and cost-effective living arrangements for temporary residents.
- Boosts local economies – Short-term lets can significantly stimulate local economies. By offering more varied and affordable accommodation options, they draw in a broader spectrum of visitors, encouraging extended stays and increased expenditure within the local area. This has the potential to support local businesses, from restaurants and cafes to shops and attractions, promoting job creation and contributing to the overall economic vibrancy of the area.
The Downsides of Increased Short-term Lettings
- Reduction in long-term rental supply – One significant concern is that the rise in short-term lets can reduce the availability of long-term rental properties. With the UK already grappling with a housing shortage and high living costs, this reduction puts further pressure on those seeking long-term accommodation. Increasing house prices and interest rates are making it difficult for many to get on the property ladder and increasing the demand for long-term rentals.
- The ‘Airbnb effect’ – This trend’s repercussions are being felt globally, to the extent that the term ‘Airbnb effect’ has been coined. It refers to the impact of the surge in short-term lets, particularly via Airbnb, on housing stock, prices, and local communities. This effect can increase tourist traffic and local property values, potentially pricing out local residents from homeownership and rentals.
- Impact on the traditional hospitality industry – The rise in short-term lets could negatively affect the traditional hospitality industry. Hotels and other established providers may lose business to these new entrants, who aren’t burdened with business rates and taxes.
- Neighbourhood disruption – A high turnover of guests in short-term accommodation can lead to increased noise, traffic, and other disturbances in residential neighbourhoods.
- Less quality control – Unlike long-term lets and hotels, short-term lets are subject to less stringent health and safety regulations, and as a result, the quality and safety of short-term rentals can vary widely. While many hosts take great pride in providing a high-quality, safe environment for their guests, there have been instances where guests have encountered unsanitary conditions, safety hazards, or misleading property descriptions.
Understanding these implications is crucial for landlords considering short-term lets, policymakers attempting to regulate this growing sector, and the communities affected by these changes.
What Does the Future Hold for Short-term Lets?
As the popularity of short-term lets continues to rise, the sector faces increased scrutiny from governments worldwide. The so-called ‘Airbnb effect’ has led many countries to introduce tighter control on short-term rentals. In the UK, this trend is mirrored by the government’s recent review of the impact of short-term holiday lets on the housing market and local communities.
The government has also been consulting on a proposed registration scheme for short-term lets in England. This could pave the way for significant changes in the sector. A formal registration process would allow for monitoring of compliance with health and safety regulations and provide a mechanism for identifying and managing properties associated with noise complaints and other anti-social behaviour.
Moving forward, it’s clear that the sector will continue to evolve. Landlords, homeowners, and policymakers must navigate these changes carefully, balancing the advantages of short-term lets with the need to maintain stable, affordable housing markets and harmonious communities.
