How to earn money from your second home
I would rather cut off my arm than sell Crabshell,”Report prepared by Lenny Holihan says of his holiday home in Kingsbridge, south Devon. One glance at his three-bedroom second-floor flat and you can see why: directly on the waterfront, 5 Crabshell Quay has airy, light-filled rooms, floor-to-ceiling windows that look straight out over the Kingsbridge estuary and sandy beaches within a short walk.
Steve, 48, and his wife, Susan, 47, spotted the £400,000 property in 2004, while it was still being built, during a drive around the area. They put down a deposit on the same day. Since then, they and their three teenage children, together with extended family and friends, have thoroughly enjoyed their little piece of Devon heaven.
“We’d always said it would be our bolt hole and had no intention of renting it out,” says Steve, a self-employed accountant who lives in Epsom, Surrey. That was before the recession. Now, with their investment portfolio in poor health, the couple plan to let out their holiday home for part of the year.
“At first, I didn’t like the idea of letting it at all,” Steve says. “Then, after we had the first set of people in before Christmas, with no problems, I felt better about it.” The couple now have bookings for half-term and Easter, as well as two for May and August. (Crabshell, which sleeps six, is available from £407 a week, rising to £1,065 in peak season; www.toadhallcottages.co.uk).
Paul Johnston, 52, and his wife, Julia, 45, did not set out to be landlords when they bought a flat near Boscombe Pier, in Bournemouth, an hour’s drive from their home in Basingstoke, Hampshire. “We love the area, and my husband and 16-year-old son, Guy, are keen body-boarders and surfers, so we were thrilled when we found a flat just 500 yards from the sea,” says Julia, 45, who also has an 18-year-old daughter, Laura.
Their plans changed in November, when they had owned the flat for less than a year. Paul, 52, a credit-risk manager, lost his job and Julia’s work as a freelance human-resources consultant began to dry up.
“We went from being a fairly comfortable two-income family to a no-income family,” Julia says. “It’s been difficult. There’s no way we want to sell the flat – and we’d lose money on it if we did – so we’ve had to offer it as a holiday let to pay the mortgage and the bills. We’ll give ourselves six months and see how we do.” The two-bedroom flat is available for rent from £300 to £570 a week (holidaylettings.co.uk).
Both couples are among the tens of thousands of people who bought second homes during the long property boom that began in the mid1990s (which, according to Savills, pushed ownership in England up from an estimated 200,000 in 1996 to more than 240,000 a decade later). It seemed a no-brainer: not only were they acquiring a bolt hole for long weekends and summer breaks, they were making money in the process. Every visit to the cute cottage or seaside flat was all the sweeter when they totted up how much its value had increased since their last time there.
In the current climate, such properties are rapidly turning into an expensive indulgence many can no longer afford. The most obvious solution is to sell, but this can be painful – and not just for sentimental reasons.
As second homes are essentially discretionary purchases, their prices have been particularly hard hit by the down-turn, especially in those areas heavily reliant on City bonus money – as Jonathan Simm, 43, an accountant from Hampshire, has found to his cost. He and his wife, Jan, were looking to sell Mewstone, their four-bedroom townhouse in the middle of Salcombe, south Devon, but have taken it off the market because they are unlikely to get the £700,000 they want.
“We bought it in 2006, and love it, but we’re not using it much now our son is at school on Saturday mornings, and it’s a 3½hour drive from our home near Winchester, in Hampshire,” Jonathan says. “We’ll have to hold on to it until prices improve and try to earn enough rental to cover the mortgage.” The Simms have blocked off a week in August for themselves, but have made it available for the rest of the time through Salcombe Holiday Homes (from £445 to £1,150 per week; sleeps eight; salcombe.com).
Their experience is typical. William Morrison, a partner with Knight Frank, based in the estate agency’s Exeter office, says demand for second homes has dropped across the whole country over the past 12-18 months. “These properties are a luxury and an investment, both of which have suffered,” he says. “There are still people wanting that perfect holiday home, but they’re waiting for the bottom of the market. My advice to buyers would be to take advantage of the situation and get the best you can for your money – something next to the water or in one of the better villages.”
In the Yorkshire Dales, Patrick McCutcheon, director of the Dacre Son & Hartley agency in Ilkley, which sells a high percentage of second homes, says sales are down 60% year on year. Since the new year, however, things have been looking better: “We are finding buyers who’ve inherited wealth or have sold their businesses.”
All of which means that, in the meantime, short-term rentals are booming. According to Holidaylettings.co.uk, the number of properties in England on its books jumped 77% from 1,500 in January 2008 to 2,650 by the end of December. It’s a similar story across the country, says Kate Stinchcombe, of Holiday Lettings, which has done the number-crunching. “In a survey of more than 3,000 owners in October, 43% said they had entered the lettings marketplace out of necessity, to cover costs including mortgage, taxes and maintenance. This compares to 30% who stated the same in the survey that we did in December 2007.”
Both Stinchombe’s company and its rival Holiday Rentals (holiday-rentals. co.uk) concentrate on traditional short-term lets, but some local agencies are coming up with more innovative approaches. In East Anglia, Norfolk Country Cottages has devised a Flexilets scheme that offers properties for rent for between two and five months, to help owners fill them during the quieter winter months. “This is for people between homes, working in the region for a short period, even those wanting a longer holiday,” says James Ellis, the company’s marketing director. “This bridges the gap between one- or two-week holidays and long-term tenancies, for which most agencies insist on a six-month minimum contract.”
How to make that holiday bolt hole pay its way
— Prioritise getting the high-value weeks booked, and be prepared to do deals. In case you hadn’t noticed, there is a recession on, which means people will have less money to spend on holidays. You are also competing with a growing number of owners.
— Market your property to specific groups. “The romantic-breaks offer is a good year-round one for smaller properties,” says Sylvia Blomeley, senior property consultant at Toad Hall Cottages. “People want detached cottages somewhere pretty, where there are good walks or views.” An open fire will add to the appeal, as will a large hot tub if you can squeeze one in.
— Invest in contemporary furnishings: there is no shortage of discounts at stores right now. Choose wipe-down leather sofas or designs with removable covers, such as those at Ikea.
— Listen to the letting agents’ advice: if they tell you to put in a flatscreen television, then do so. In a tough market, such details can be all-important. The more expensive the property, the more holidaymakers will expect the latest high-tech equipment.
— Read up on tax law. Revenue & Customs treats holiday lets more favourably than ordinary buy-to-lets – and even allows you to offset any loss you make against your income as a whole. At the same time, you must follow certain rules: the property must be furnished, available for a minimum of 140 days and actually let out for at least 70 of them at a market rent (which means no mates’ rates). They can be let for longer-term occupation (more than 31 consecutive days), but not for more than 155 days a year. Confused? Go to www.hmrc.gov.uk and search for “holiday lettings”, or consult an accountant.