The recent financial shock has yet to be felt in the holiday let market, but what does it mean for hosts?
Minding my own business
Inflation hit the linen suppliers first, always keen to raise their prices I immediately received an 8% price increase here. I cut back a little by reducing the number of towels provided and providing my own tea towels so instead of 45p to launder, 50p each to buy, with a single wash-load once a week (with a 75% re-use rate). Pennies indeed but this is where we are. Our housekeeping team parted company a few months ago (upon requesting a large pay rise) and we now manage our cleaners ourselves. This sometimes involves helping out when busy, but the current doom and gloom tells me that 'busy' may be yesterday's news.
Renovations will cease after the current one, over the last 5 years I have renovated 10 apartments and only have 2 left in their old-school rental state. They will remain in the rental market should my loyal tenants leave…those tenants, should I raise the rent? Many of us have loyal but cheap renters who form the backbone of our portfolios but rents are the only buoyant part of the market right now. This will be a shock for my handyman who has had steady work for a few years from me; fortunately he is good and reliable so I don't think his business will suffer.
The poorer-performing holiday lets will be put to rental, at least for the Winter. Sometimes inexplicably, a property fails to launch or perform well so they are available if you come across anyone suitable. A slow market will see rental as a better option. Fortunately holiday let finance usually allows AST as a back-up.
New projects – I spat out my coffee this week when I was offered a product at 8.99%! The exact same product that I fixed at 4.5% last year. As fixes come to an end landlords will exit the market, lower their gearing and rents will go up. From previous experience I would suggest an 18 month to 2 year lag before rents once again become viable for newcomers. We immediately got on the phone to drop our offer by £20,000, to cover the difference in payments for just 3 years. Fortunately the project still stacks thanks to a niche strategy that is not reliant on the ups and downs of the economy.
How about short breaks? The mainstay of the business…we have had a practice run during Covid and limped through on contractor bookings at half the normal rate (but we had Government support to a point). There is a degree of crisis fatigue setting in as there is for everyone, I am sure. A trip to Portsmouth is not an essential item and so I believe the guests will not come at weekends as they always have. The midweek workers will continue but they are more savvy than ever and know that prices can be negotiated in their favour at difficult times. The workaday holiday let properties will have to up their game or close to survive, those with parking, gardens, balconies and other USPs will drop their prices to claim the scant bookings...Give up? Not yet….