Second Home Report (It’s all about Income)

Posted by in Chartsedge News on the 7th of July 2012

June 2012
As Summer approaches our contacts in the holiday letting industry are reporting a big increase in demand for 4* and 5* holiday accommodation in Devon and Cornwall with one company, Pure Cornwall (www.purecornwall.co.uk), saying they have seen bookings increase four fold compared to last year. Rents on the best houses and apartments have also increased.

They are many reasons for this, and we have noticed that there are a number of holidaymakers deciding to stay in the UK this summer due to the weak economy. We have heard from our clients and applicants that due to the reduction of the number of flights from regional airports to many countries in Europe, flights are very expensive (there are 7,000 less summer flights in 2011 to and from regional airports compared with 2010). Although package holidays are still competitive most of our buyers want to stay in self catering accommodation, with the emphasis on villas and houses, and book flights themselves. This is reflected in the figures published by Visit England earlier this year. The number of nights booked in 2011 was up slightly but the amount spent on accommodation increased considerably.

The number of bed nights booked was up by 1 million to approx. 20.2 million (about 5.5%) and the expenditure by holiday makers on holiday accommodation was also up by approx. from £441 million to £4 billion, which equates to over 12%. The average spend on accommodation in 2010 was £48 per night and in 2011 it went up to £53 per night.

Example
Stonerush Lakes, Cornwall
A lodge bought for £200,000 was available for rent on 1st November 2011 and by 31st May 2012 had already achieved bookings worth £15,000.
The average spend per trip also rose nearly 6.5% to £199 from £187 in 2010.
The figures for this year seem to be set to outstrip 2011 as more people skip their foreign summer holidays in favour of the traditional seaside holidays of yesteryear but with that luxury twist.

Many of the properties available to holiday let in Devon and Cornwall are now of the highest quality and second home owners realise that to achieve the best possible return they cannot let their homes with old furniture, poor kitchens or no internet access etc. They have had to refurbish to appeal to this more discerning market.
Let’s face it, the interior of a holiday home in the UK is important for those less sunny days.

Plot 4 Stonerush Lakes

Our Buyers
Our buyers are not only looking for value for money at the outset but are looking for a rental return on their investment. From our database we see two types of buyers.

The Mature buyer
Many of our more mature buyers are seeing their pension pots eroded and do not feel comfortable with their money in traditional stocks and shares as they have no ‘tangible asset’.
There is also a changing attitude from this sector of buyers who also want to enjoy the money they have worked and saved for. Once they have downsized from their large family house they are more likely to invest in a second home that they can use outside the main holiday season and let at other times thus creating an income.
This ‘grey buyer’ is an astute one who knows what they want, they are often buying with cash and want to buy now to enjoy their second home with friends and family.
These buyers are now more willing to look at contemporary properties even though their own homes are of the traditional type. They appreciate the ease of holidaying in a modern easy to maintain property.
In the long term they intend passing the property onto their children and by doing this it can become an effective way of mitigating Inheritance Tax.

The Family Buyer
Usually middle aged, these buyers buy with a small mortgage and want an income to cover this expense. They look at their purchase as part of their pension, looking to pay off the mortgage over time and in the medium to long term see a rise in values.
They have rented houses in the past with friends and family and are acutely aware of what is expected from holiday makers, they either buy new and modern off the shelf furniture packs or buy existing homes with everything included. They do not have time to refurbish run down houses and realise that overseeing such a project from a distance involves many headaches.

The Blue House, Watergate Bay, Bought by two friends some 8 years ago . They now have young demanding families and do not use the house as much as they would wish. This 7 bed house is on the market showing an approx. 6.5% return. Price £835,000.

Investor Buying example
Mr Smith is a mature buyer who has a lump sum he wishes to invest for his retirement and also wants an income.
He buys a 2 bed apartment with sea views in Newquay for £260,000 with a £130,000 deposit, borrowing £130,000. We have taken advice from our preferred mortgage broker who say that, subject to qualification, the interest rate for such a loan would be at 4% making the interest payments approx. £5,200 per annum.
A property similar to this achieved £27,918 in letting income last year, after taking into consideration letting fees at 25% = approx £21,000 net income. This equates to an 8% yield on purchase price. However if you look at the return on capital spent (£130,000) this yield rises to 16% net of interest payments.
As you can see from this very simple example it would be possible to use your second home for a couple of weeks a year and still receive an excellent return.
With many people thinking that the property prices in the South West have now fallen to their lowest level you can see why many buyers are considering this form of investment over the more traditional shares and savings accounts as the returns are so attractive.

Your second home that makes you money
Westaway, Portreath Cornwall

Westaway cgi4 bed cliff top homes. Stones throw from the sea and beach.

Prices from £775,000 to £850,000

Stunning sea views from these contemporary houses. The roofs are now on and windows are being fitted. The rooms are massive and the view is the best we have seen for years. View now if you would like to make changes in design before it’s too late.

Gwel an Mor, Cornwall.

Gwel an Mor2/3 bed holiday homes on a 5* resort. Walking distance to the beach.

Prices from £267,500

The first phase all have sea views and the resort offers spa, indoor pool, tennis, restaurant, children’s’ activities etc. These holiday homes are cutting edge with many eco features and are set above Portreath with their own pathway to the sandy beach. Guaranteed rental income of 6% net.

Tre Lowen, Cornwall.

IMAG0152

1 and 2 bed apartments many with sea or countryside views

Prices from £125,000 to £167,500.
Only 500m from the world famous Fistral beach in Newquay. At last an affordable new development in the area. Ideal Second Home investment.


The Blue House, Watergate Bay, Cornwall.

7 bed detached house with sea views ½ mile from Watergate Bay beach.
Price £835,000
Amazing large house ideal for extended family holidays and perfect for the increasing demand for the larger holiday let property. Currently being let on a holiday basis and incoming purchaser can benefit from 2012 income. 2011 showed an approx. 6.5% yield.


Black Rock Sands, Cornwall.

Black Rock Sands3 and 4 bed holiday homes on the dunes at Widemouth Bay
Prices from £335,000

Only 2 remain on this small development of 8 houses which sit practically on Widemouth Bay beach. They have been designed to an exacting standard and the present owners are achieving great rentals this year.


Stonerush Lakes, Cornwall.

Watersedge 1,2 and 3 bed lodges set around 3 lakes and converted mill club house. These holiday homes are built to an excellent standard.
Price £125,000 to £225,000

We have already sold 18 of these this year and our buyers are very pleased with the rental income they are achieving (see earlier example). Most of these homes have been snapped up by the ‘Grey Buyer’ as they offer excellent income and flexibility.