The UK government released their “mini budget” on Friday the 23rd of September 2022 and it is safe to say, it has been a rollercoaster week for Truss and her team. In the week following the announcement Truss has had to roll back on one of the big statements she and her team made: the amendment to higher rate income tax. It will be interesting to see what else lands on the chopping board in the coming weeks.
But what does the UK’s mini budget mean for the holiday rental sector - growth or further plateauing?
As a Property Manager (PM) there is no escaping the strain on bottom line profit margins. The rising energy bill crisis compounded by the recent announcement that inflation in the UK has hit a new 40-year high has led to ever increasing pressure to you as PM, with owners across the country questioning their accommodation rates and pushing hard to retain their profit margins.
UK government’s “Mini Budget via a Mini Statement”
Unfortunately this could not have come at a worse time for the self-catering accommodation market. Over the last year of 2022, as PMs we have seen a shrinking of demand for the properties we represent. Understandably, with borders opening and international travel returning to pre-pandemic levels, there is not the same demand for self-catering accommodation as was seen in 2021.
2021 saw an unprecedented boom in staycations across the UK and as a PM it was a daily struggle to not only keep up with guest demand, but also keep up with the ever increasing demands from property owners.
The 2021 boom has lead to a sharp increase in owners expectations of what return their holiday let is generating. When in reality there is every indication that self-catering accommodation values should be returning to the pre-pandemic levels of 2019 (source: Scottish tourist board).
Energy Crisis
The announcement of the energy bills cap for six months will come as a relief for many, but is it enough of an assurance? It will allow some PMs to make a set of short term budgets and forecast costs for the coming 6 months but the absence of a long term solution will leave many feeling vulnerable and one thing is clear, the cost of energy is going to remain very high for the foreseeable future.
The uncertainty around energy prices is not only impacting our industry directly with office overheads going through the roof, but also from the ever increasing calls from our owners asking if they can increase their self-catering accommodation value to cover the costs of running their holiday let.
The cost of living crisis is having, and is going to continue to have, a huge impact on the average families decision to take a house during the school holidays over paying their heating bills. The move to cap energy to £211 per megawatt instead of the forecast planned cost of about £600-£700 per megawatt will be a life saver for many.
Inflation
Inflation has led to a very unpredictable market, seeing those that would have booked their self-catering getaways in advance choosing to wait, which of course impacts on cash flow for agencies.
Stamp Duty Exemption
The stamp duty exemption up to £250,000 will come to some as a great incentive to buy a property.There is a slim possibility that some of these houses, that may have remained on the market may find their way to your portfolio. But for holiday property investors there is nothing to be gained from this announcement.
NI Contributions
The announcement of cutting employer NI contributions is welcome news for agencies running small to medium portfolios of self-catering accomodation and with will help reduce costs as PMs attempt to keep businesses running and profitable, but also and far more importantly, this may give households the relief they feel they need to enjoy affordable luxuries such as renting a holiday let for a week.
Not Doing Anything Is Not an Option
It is worth reminding ourselves that between 2019 and 2022 the average cost of a holiday let increased with ADRs up as much as 30% on 2019 (source: Beyond) - a previously unheard of level of growth. Couple this with a 33% increase in houses being brought to the market in recent years, and these days are a true test of any hospitality entrepreneur.
PMs sit at the crossroads of a highly laborious industry that’s seeing rising pressure on housing, wages and staffing shortages, as well as rising prices for goods and material to keep listings open and clean for guests.
In this market, there’s an urgency to do something, whether it’s through nightly rate hikes or fee increases. Property managers are being squeezed by supply chains and wages, while at the same time having burgeoning demand for their inventory.
Those that leave their prices flat will find themselves delivering unprofitable reservations well into 2022 and beyond, while those that adjust their costs will see record-breaking revenue. The only thing for certain is that higher prices tend to attract attention and new competitors so we all need to be on top of our game.
To make sure your portfolio is in shape to deal with these inflationary pressures, take a look through our Insights tool by requesting a demo today.
