There are a few blocks of flats in Parkstone that don’t allow any letting at all, an experiment from a different era. The concept was that knowing your neighbours would only ever be owner occupiers would make the properties more exclusive and enhance the value. To this day the rules are vigorously enforced by residents and an owner who even goes away for a few months and lets a friend live in his apartment will hear from the residents association in short order.
Time has shown that the enthusiasm for the rules from a small cadre of buyers has been far outweighed by excluding investors from purchasing in the blocks and instead of carrying a premium the flats trade at 10-20% less than comparable properties without the restrictions. During the last few property booms the discounts grew even more as buy to let investors stoked the market for flats and Ashley Cross developed into an attractive area to live for just the sort of young people who want to rent.
Many of the blocks on the Sandbanks peninsula and along the shoreline towards Bournemouth were built around the same time when the world was a very different place. As I creep towards the line of being nearer 60 than 50 it’s really hard to understand just how different the mindset was of the same generation 30 or 40 years ago. I remember when it was announced that the retirement age for ambulance drivers was to be raised from 60 to 65 the union pointed out that more than 50% of their members would die before receiving it.
Potential purchasers then were often retirees who at 60-65 had a mindset that they were moving to quietly live out their final years. At the same time holidaymakers coming to Sandbanks and especially Bournemouth were ‘bucket and spaders’ going self catering to save money and the perception was they might be noisy and have uncontrolled kids running around at all hours. It’s understandable that many developers chose to specify no holiday letting in the lease and to this day an estate agent showing you a flat will sell the restriction as a benefit- ‘At least you won’t bump into someone with an ice cream coming up the stairs!’
As we head towards 2020 I could write a book on all the things that have changed but what’s really significant is the tax changes for both investors and people with second homes. The restriction on mortgage interest relief for buy to let investors is a massive and fundamental change in property investment taxation but phasing it in over 4 years was a stroke of genius on the government’s part as the new rules are gradually biting without a fuss being made. Holiday lets are thankfully exempt from this change. Second home owners and buy to let investors now typically pay capital gains at 28% on sale compared with 10% for a holiday let, which can also qualify for small business rate relief to avoid council tax.
Another big development has been the meteoric rise of Airbnb and other accommodation platforms encouraging many more second home owners to dip their toe into short term letting and with the costs of buying or renting so expensive in this area there is even a new generation coming who are factoring income from letting part or all of their property when working out how to afford their new home.
Finally there has been a surge in demand for serviced lets- shorter stays in furnished accommodation that are not for a holiday. This is a fast growing part of our business with people staying Mon-Fri who are working away from home or 2-3 months whilst in between houses, having an extension built, fixing flood damage or a multitude of other reasons. No holiday letting clauses normally specify minimum 6 month tenancies so also exclude this sort of opportunity.
Every week I speak to potential new owners and if they are looking at buying in Sandbanks the first thing they need to find out is which blocks allow holiday letting. Property investors being hit by the tax changes may look at switching to holiday letting but if their block doesn’t allow this their only options are to pay the extra tax or sell.
I'm certainly not a trained economist but reducing demand for a property by restricting it’s investment potential and increasing supply by forcing investors to sell is inevitably going to put downward pressure on prices. It may be that there’s an actual reduction or it could be that there’s a more subtle difference in price growth but as the tax changes come into full effect we are bound to see properties with short let restrictions trading at a discount.