As 2018 comes to an end, and with the uncertainty of Brexit looming, property owners in London are left scratching their heads as to what the best rental strategy is.
Is it a great time to buy new property, as prices seem to be going flat or down in some areas of the British capital? Is it better to go for long-term tenants as a stable income stream?
What about short-term lets – are they a good option in the current climate? These answers, and more, below. Or scroll down for the conclusion!
Rental strategies in 2019: long lets vs short lets
We’ve talked about the main differences between long and short-term lets before, to highlights their pros and cons for property owners. But there is more to it, if we want to go into the details. Here, we’ll review some of the main reasons to pick one or the other.
The main differences between short, mid and long term rentals or lets
Here’s a quick refresh of the main differents, and adding the further distinction of mid-term lets:
- long-term lets (long lets): the traditional letting arrangement, with contracts from 6 months to 2 years,
- mid-term lets (mid lets): a growing segments of lettings, from 1 month to 6 months, typically for professionals or students,
- short-term lets (short lets): the fastest growing segment, from 1 day to 30 days, which originated in vacation rentals and is popularised by platforms such as Airbnb, HomeAway, TripAdvisor or Booking.com and traditionally earn property owners the most.
Each strategy has its benefits and risks, and adopting one or the other depends on:
- the economic environment – short lets are best when tourism is doing well for instance,
- the property – its location, type and availability,
- flexibility requirements – do you prefer to be able to get the property back easily should you need to, or to organise viewings easily?
- bandwidth – and how much time you want to spend doing things yourselves or through agencies,
- revenue expectations and risk profile – how much money would you like to get out of the property, and how risky would you like it to be?
Comparison table with pros and cons for short lets, mid lets, and long lets
As a rule of thumb, here is how short, mid and long lets compare:
How to pick the best rental strategy for your property or properties in 2019
Now that the benefits and risks of each type of letting is clear, we can look at 2019 together, and determine what is your best. To do that, we’ll first evaluate the property market in London for next year, and then look at the tourism forecasts for the capital. As we saw in the comparison table, this will help you decide between short and long lets.
Rental strategies in 2019: the property market, tourism forecast, and overall environment
The property market in London in 2019: looming Brexit and other factors
Long-term rents likely to go down in 2019, with slight rebound in 2019, making long lets less attractive
There is no avoiding it: the specter of Brexit looms. And with it, the uncertainty has taken a hold of many buyers and sellers. Whether the U.K. leaves the E.U. with a deal or without, the 29 March 2019 cut-off date is months away and all bets are still off.
This has taken a toll on the property market: London houses prices overall are showing worrying signs of stagnation or even decrease in some areas. The general mood is best described as “wait and see”, as the November 2018 numbers show: listings for homes being sold on Rightmove in London declined by 24%.
This climate will also impact the attractiveness of London for new and existing residents. While it is unlikely to drive drops in rental incomes right away, there will be an effect for homeowners. The type of Brexit chosen has already limited foreign investments in the country, as well as delayed expansion plans for existing businesses. Most forecasts point at a modest growth overall in 2019 and 2020, up to 2.1%.
Finally, the Bank of England’s main interest rate has steadily increased in 2018, to now reach 0.75%. It’s making variables mortgages more expensive for 3.5 million U.K. homeowners, and is likely to rise again in December 2018 to fight off inflation. The pressure for homeowners to increase rental income will grow, and it is unsure whether it can be met in London with long term rentals alone.
Travel in the UK in 2019: even better than a record 2018?
Travel forecast strong for 2019 and 2020: the demand for short lets will increase
On the other end, 2018 is already set to be the best year on record for tourism in the UK. VisitBritain forecasts 40.9 million visitors from overseas, spending a total of £26.3bn, up from 39.2 million and £24.5bn in 2017.
2019 could be even better, as many factors converge to give a boost to London in particular:
- a weaker pound will make the U.K. more attractive to overseas tourists, increasing their spending power,
- London, with 19.83m visitors in 2018 (up 3% on 2017), is #2 of Top Global Destinations charts
- a strong economic growth forecast globally, especially in Europe and the U.S., will increase travel flows overall,
- the share of disposable income spent on experiences, such as travel, continues to grow (especially with millenials now accounting for over 25% of the population in OECD countries),
- London can easily take advantage of top 2019 travel trends such as a bigger focus on sustainability, and meaningful local activities.
This will fuel a strong demand for homestays in London in 2019, and ensure a good occupancy at a fair rate.
Conclusion: the best rental strategy in London in 2019 is… short, with a bit of mid
Short lets best bets to take advantage of growing tourism flows, especially with Brexit uncertainty looming
When all is said and done, the best strategy for 2019 is likely to be a mix of short and medium lets. As we’ve seen, the tourism forecast for London is very positive, guaranteeing a strong demand for short lets in 2019. On the other side, the growing demand for medium lets make them an attractive alternative from September to May. The risks are minimal – as the demand is strong – and the upside is big.
While the outlook for long term rentals isn’t completely negative, it is looking flat at best (after inflation). Thus, introducing short or medium lets to your mix makes sense. If the operational side is your main issue, there are a number of short let management services you can try. This commission-based model helps because you only pay them if they deliver revenue for you. And they will take care of the operations of listing, pricing, welcoming and cleaning – and often more.
In fact, specialised property management services, such as Hostmaker, can even manage your home on short, medium AND long term rentals. Their local experts will help you to pick the best option depending on your property, your profile and your goal.