Charities have already been tested and stretched by two years of restrictions on fundraising and the closure, whether temporary or permanent, of their retail operations. Now they are facing increased costs at a time when they are also going to see the value of their assets eroded by growing inflation.
Help from the government
The government’s measures to help charities through the pandemic, while not universally felt to be adequate, did include some very welcome provisions including, of course, the ability to furlough staff and relief from business rates. The recent announcement of measures valued at £37 billion to help households to cover rising fuel and food costs is also welcome, but charities, to whom increasing numbers of people will turn for support as they feel the pinch, are not likely to be offered any new grant schemes, loans or furlough deals to help them weather the storm, and nobody really knows when or where this inflationary spiral will peak, when and how much it will come down and how long it will take to do so.
It is striking that more than 40% of the mutual aid groups that were formed to help communities when COVID-19 hit are still operating, with their focus now shifting from helping those who were forced to isolate to providing food banks and community kitchens, and many of them have now become more formally established as charities. They join the growing numbers of food banks serving those who struggle to put food on the table; the Trussell Trust reports that food banks in its network across the UK provided more than 2.1 million food parcels in the year to the end of March 2022, 14% more than the year before the pandemic.
Donor behaviour
At the same time, there is a real possibility that donors will cut back on what they choose to give to charities as they find their disposable income no longer stretches as far as charity. Having said that, many donors stuck by their favourite charities through the pandemic as they realised that new needs were emerging, and they may well continue to support them through what is looking increasingly like a recession in the making.
Flexibility and resilience
Let’s also not forget that charities can show great resilience in times of crisis, and an ability to adapt and innovate to survive. I recall predicting a wave of charity mergers and closures in the wake of the 2008 banking crisis, which I am glad to say never materialised, and it may well be that this capacity for flexibility and responsiveness will see charities through the storm.
We have seen some great examples in the sector of charities that responded to the pandemic in a highly organised way, acting quickly to identify risks and put mitigating measures in place. While they may still have some way to go before they are back at pre-pandemic levels of income, charities are likely to find ways of coping with a period of high inflation and low economic growth. Some will, we are sure, explore new sources of funding or modify their approach to any investments they may be fortunate enough to have, and the measures in the new Charities Act 2022 that will make it easier to unlock capital may help in this regard.
Others may find new ways of releasing value from their properties, whether by renting them out during any periods when they might otherwise not be needed (of particular interest to charities that manage educational premises) or by disposing of property that may have become surplus to requirements in the new era of remote and hybrid working.
More mergers?
Mergers may become an attractive option for some charities, as there are significant savings to be had in the medium to long term if they can find the right partner with whom they can share some of their functions. A merger is unlikely to be the answer to a financial crisis, as any partner organisation will be aware of the dangers of taking on the liabilities of a charity that is struggling to stay afloat, but if steps are taken early enough, it can be an effective way of ensuring the continuity in the delivery of services to beneficiaries.
Should the government do more?
Thinking beyond the question of what charities can do to help themselves, I have also been reflecting on the extent to which the charity sector has changed since I first became involved, with increasing volumes of services that were previously delivered by local authorities now being outsourced to the voluntary sector. I am all in favour of deploying the expertise of charities, and their knowledge of local needs, to help communities. However, when I see contracts awarded to charities with no scope for price increases to keep pace with the rising wage bills or other costs, or charity balance sheets showing potentially crippling pension scheme deficits inherited from the public sector, I do wonder whether the central government may have to reverse (at least on a temporary basis) the process by which local and central government passed these risks to the charity sector. Shouldn’t we be urging the government to put more resources into a sector on which it has come to rely so heavily for core infrastructure and services?
About the author: Paul Ridout is Partner at Hunters Law.
In its most recent Global Economic Prospects report, the World Bank said it expects global economic expansion to drop to 2.9% this year from 5.7% in 2021. This is 1.2 percentage points lower than the 4.1% predicted in January.
The report then predicts growth to maintain this level from 2023 to 2024 while inflation remains above target for most countries, which points to stagflation risks.
“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” World Bank President David Malpass commented.
According to the report, growth in advanced economies will likely drop sharply to 2.6% in 2022 from 5.1% in 2021.
Meanwhile, expansion in emerging markets and developing economies is expected to drop to 3.4% in 2022 from 6.6% in 2021.
“Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality,” Malpass said.
This is why the success witnessed in the UK property market was quite special. The resilience of the market saw investors presumably looking to cash in on assets that have been historically reliable during a time when other opportunities haven’t looked as stable. Clearly, when looking at recent figures, this isn’t slowing down, with houses selling faster than ever, twice as quickly as they did in 2019, according to Rightmove’s house price index.
This boost in market activity is coupled with the surge in rising house prices recorded across each of the major recognised UK house price indices. For example, Nationwide's April house price index revealed that average property prices have now reached £267,620, the ninth straight month of growth.
Of course, this should not encourage complacency – the property market is not impervious to market volatility, particularly in the face of rising inflation and a cost-of-living crisis.
That said, with all Covid restrictions coming to an end at the beginning of the year, the health of the market is set to receive a significant boost in the form of international investors keen to take advantage of the freedoms not as readily available in previous years.
What is the role of international investment?
Attracting non-domestic investment will be vital. Not just to maintain the current growth of the market once domestic activity begins to lose momentum, but to help with the country’s economic recovery.
Fortunately, this appears to be the case since the reopening of travel into the UK. According to Knight Frank’s City Wealth Index section of their 2022 Wealth Report, in 2021, London saw more cross-border private capital in real estate than any other city in the world, with over $3 billion invested. Their forecasts estimate this trend to continue over 2022, with a further $24 billion expected to be invested in the capital.
The demand is certainly here for international investments when considering the UK’s housing crisis as the country desperately needs to address the chronic shortage in housing. According to one estimate commissioned by the National Housing Federation (NHF) and Crisis from Heriot-Watt University, around 340,000 new homes need to be supplied in England each year, of which 145,000 should be affordable. However, only 216,000 new homes were supplied in 2020/2021.
International investors have the potential to play a key role in supporting the construction and development sectors by buying new residential units off-plan and funding development schemes, particularly at a time when the knock-on effects of the pandemic have contributed to the slowdown of construction.
As such, they have the potential to achieve strong returns, especially when investing in growing areas. Regional areas outside of London, such as the West Midlands and North of England, are also very much on investors’ radars and will be ones to watch as they continue to gather pace in the years to come.
Could current macroeconomic headwinds slow down international investment?
Despite the promising signs, one must also acknowledge that the macroeconomic headwinds at play could impact the pace of growth.
For one, interest rates have continued climbing, having recently risen to 1%. Usually seen as a negative headwind for property investors, increased base rates tend to be followed by a rise in mortgages. Any overseas investors already operating on a variable term mortgage will see rates rising, while those considering taking a new one out to purchase UK property will have to factor in higher mortgage rates than they would have experienced last year.
Of course, the reason the Bank of England has increased interest rates is to control soaring inflation; another potential concern for the investors. Prices are set to rise to 10% this year – the highest rate for 40 years alongside increased energy bills and goods prices. A combination of high interest and inflation could erode rental returns and devalue the property if house price growth slows. Not to mention the consequent cost-of-living crisis brought on by raised costs has an indirect effect, as tenants could struggle to afford rents.
However, with all this said, international investment in the UK is unlikely to falter when the demand for new property is so high. Meanwhile, the drop in the pound since the UK’s withdrawal from the EU means that favourable exchange rates will see investors’ money stretch further.
With so much economic uncertainty off the back of a, to put it lightly, challenging two years, it is more important now than ever that we take full advantage of international investment flows. Harnessing the potential of this vital resource will be key to ensuring the continued healthy growth of the industry, the creation of new homes, and the wider economy in general, as we look to put recent times behind us.
About the author: Jamie Johnson is the CEO of FJP Investment, an introducer of UK and overseas property-based investments to a global audience of high net-worth and sophisticated investors, institutions as well as family offices. Founded in 2013, the business also partners with developers in order to provide them with a readily accessible source of funding for their development projects.
At the beginning of the pandemic, Congress formed several new programmes to support the millions of people who lost their jobs due to the introduction of lockdowns and the onset of economic uncertainty. These programmes, which officially ended last September, worked together to increase weekly benefits, extend their duration, and make more people eligible to receive them.
Over this period, the federal government issued nearly $873 billion in total unemployment payments, with the Labor Department also revealing that criminals were able to defraud the system due to programme weaknesses.
“The unprecedented infusion of federal funds into the UI program during the pandemic gave individuals and organized criminal groups a high-value target to exploit. That, combined with easily attainable stolen personally identifiable information and continuing UI program weaknesses identified by the OIG over the last several years, created a perfect storm that allowed criminals to defraud the system,” the agency’s report said.
“Applying the 18.71 percent to the estimated $872.5 billion in pandemic UI payments,36 at least $163 billion in pandemic UI benefits could have been paid improperly, with a significant portion attributable to fraud. Based on the OIG’s audit and investigative work, the improper payment rate for pandemic UI programs is likely higher than 18.71 percent.”
Michael Kamerman, CEO of Skilling, shares his opinion on what stock you should watch this week.
Amazon
This week we are seeing Q1 earning results from 175 of the S&P 500 companies including big tech results from Microsoft, Google and Meta. Companies like Apple have thrived in the new year and reached all-time record earnings this quarter, continuing to make them an attractive investment for traders.
One to watch will be Amazon’s earnings report. Much like any other online-based service provider and seller, Amazon saw a boost in sales during the last two years due to Covid and lockdown affecting consumer behaviour. However, now that things have settled, recent UK sales reports are showing online sales falling noticeably across the board.
AMZN is currently down 23% from its November 2021 high and investors are keen to see whether their earnings show that things are picking up or slowing down.
Amazon’s 18% stake in electric vehicle maker Rivian last quarter helped “juice” their gains, however, Rivian’s recent struggles surrounding botched price hikes and supply chain issues may affect the big tech’s profitability, as Rivian is now consequently trading at near all-time lows.
Additionally, Amazon’s fuel and inflation surcharge come into effect on April 28th to combat rising prices. Alongside the unionisation situation, it has had to deal with in Alabama and now New York, this may likely affect stock prices.
On the offset, Amazon Web Services has been a key profit driver for Amazon in the last quarter with Amazon’s cloud sales growth hitting 40%.
In any case, investors will need to closely consider Amazon’s earnings in comparison to the other big tech giants to make a decision on their trading.
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
To diversify your stocks and bonds is to undergo an effective risk management strategy that enables you to invest in a range of different financial assets which can play a key role in reducing the risk of damaging losses occurring.
This can be extremely beneficial during times of high inflation like that of today. As the soaring cost of living is leading to more investor sell-offs of previously strong stocks, diversification helps to ensure that all your eggs are kept in different baskets and are thus stronger during a downturn.
As the record-breaking inflation of today is being impacted by multiple factors surrounding the Covid-19 pandemic and geopolitical tensions, the stocks that are being impacted by the downturn in unprecedented ways - making a diversified strategy far safer over a long term basis.
The Importance Of Diversification
Let’s imagine that you decide to buy stocks in an industry that you believe will have high potential in the future. Share prices are likely to go up as the industry continues to grow, but are liable to go down in the wake of any negative news surrounding the industry and any disruption caused to the companies that operate in the space. In such an event, it’s likely that your portfolio will suffer a significant drop in value if it’s not balanced out by other investments.
When this happens, it can be a good idea to look at what’s causing your chosen industry to struggle. In 2020, the emergence of Covid-19 brought chaos to air travel as international borders were closed and thousands of flights were cancelled.
As a result, other stocks focused on digital entertainment like Netflix and remote communication apps like Zoom rallied as holidaymakers were forced to stay home and interact with friends online. We also saw ‘staycations’ become more popular as lodging marketplace Airbnb’s stock rallied in late 2021 amidst the outbreak of the Covid-19 Omicron variant.
This diversification away from travel stocks ensures that an industry downturn won’t be too impactful across portfolios. It’s also important to diversify among different asset classes. Different assets like bonds and stocks don’t behave the same way to adverse events, and the combination of asset classes like stocks and bonds can reduce a negative response from within your portfolio to adverse market events because they are likely to move in opposite directions. This means that negative movements can be effectively offset by positive ones in different markets.
Another key factor when it comes to diversification is geography. It’s essential to look for stocks and bonds that don’t operate within the same country as others. This means that a domestic financial crisis won’t hurt the entirety of your portfolio.
Playing The Long Game
The stock market can be an extremely mysterious place, and the highest performing assets of today rarely sit still. Whilst stocks are generally the growth engine of portfolios, they also endure many bumps along the way which can see losses accumulate.
Image by Schroders
As the chart above shows, the highest performing asset classes have varied wildly throughout the 21st Century, and the recent inflationary period is likely to lead to a fresh period of market volatility over the coming years.
“Investors should use a selective overall strategy and not forget about diversification,” noted Maxim Manturov, head of investment advice at Freedom Finance Europe. “This includes an emphasis on quality deals that are based on solid balance sheets and high cash flow generation. Also one of the ways to guard against market uncertainty is to abandon stocks with troubled balance sheets, which benefited from stimulus during the pandemic.”
This can be a difficult approach for investors to come to terms with. After all, if you believe in an industry, you’ll likely find it difficult to move your money into markets that you’re less passionate about. However, it’s these mitigating moves that can keep your portfolio stable when an unexpected negative turn in the industry occurs.
Significantly, many investors have turned to bonds as a type of ballast for a portfolio, with prices rising and falling at a less severe rate than stocks which can help to keep portfolios protected.
Adopting A 60/40 Stocks And Bonds Strategy Can Help
In response to the inflationary pressures facing portfolios worldwide, we’ve seen more investors take on a stock to bond ratio of 60% to 40% respectively. This helps to protect investors from reversals of correlations without the risk of shedding their wealth.
Vanguard data suggests that many investor portfolio asset allocations have been tilting towards stocks at around 80% coverage over 60% - this is an extremely risky strategy to take during times of high inflation and one that could risk devaluing a portfolio.
Fundamentally, portfolio outcomes are determined by investors’ strategic asset allocations. However, this is good news, because it means that well-balanced portfolios can pave the way for investors to continue seeing healthy performance within their assets whilst staying protected from the next challenge set to test global markets.
Michael Kamerman, CEO of Skilling, shares his opinion on what stock you should buy this week.
Tesla
By now, Tesla is renowned for its well-performing stock as well as its prolific CEO, Elon Musk. But, the company has reached new heights, delivering 310,048 cars in the first quarter of 2022.
Despite ongoing supply chain interruptions and China’s zero Covid policy, Tesla broke their own sales record – delivering nearly double the 184,800 cars in Q1 2021.
With Tesla’s Berlin factory up and running, and the increase in overall production, momentum will only grow for the company.
Whilst this progress is impressive, it is the news of a stock split that has accelerated Tesla’s stock price. Investors may see this as a green light to invest in Tesla stock but they should be wary that a stock split could have little to no impact on the overall stock price.
An added facet for investors to consider is the concerningly high valuation of the company. This gives very little room for the company to stall or misstep, something which comes with the territory of the market.
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 89% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Not investment advice. Past performance is not indicative of future results.
When 2021 ended, it was as if the whole world breathed a sigh of relief. Although we still felt the effects of the Covid pandemic, we were ready to leave the last two years behind and move on to better and brighter times. So when the news broke of Russia’s invasion of Ukraine on February 24, it sent shockwaves across the globe.
To condemn Putin’s war, western leaders announced some restrictive economic measures to target Russian financial institutions and individuals. But as Russia is one of the leading suppliers of gas and oil worldwide, these sanctions have seen prices for these resources shoot up in the US and UK and add further pressure to the already volatile economies. In fact, the US is experiencing its highest inflation in 40 years and the UK is currently facing its worst recession since the 1970s, and many experts predict we are on the brink of the next big global financial collapse.
What does this mean for investors and their money?
During times of crisis, many will opt to put their money into investment funds, like the S&P 500, or ISAs to mitigate the risk of any major financial losses and hopefully still be able to grow their investment portfolios. But indications show that the S&P 500 is on a downward trajectory and may no longer be the most future-proof option for investors. Similarly, the money put into ISAs will lose its purchasing power as inflation levels rise.
What can investors do to mitigate the negative effects of inflation?
Enter alternative investments. Alternative investments like gold, wine, art, and real estate are examples of options that have for many years been used by investors as a hedge against inflation. Referred by many as ‘inflation or recession proof’ these alternative investments, alongside commodities and cryptocurrency, have proven to yield higher returns despite financial crises.
To gauge how recession-proof the different alternative asset classes are, we look at their performance during historical periods of recessions or market turmoils. For example, between December 2020 to December 2021, inflation grew by 7%. Meanwhile, wine grew by 19.10%, art by 58.81% and Ethereum by a whopping 2724%. So, it is understandable why during times of crisis, financially savvy investors turn to these options for investing and to safe-up their portfolios.
However, there is a less talked about option that has been going through a revival, despite being one of the oldest forms of investment assets - coloured gemstones. In the last decade, coloured gemstones have experienced some of the biggest price jumps in history. In 2015, the world’s most expensive ruby was sold at auction: a 25.59-carat gem, known as the Sunrise Ruby, for over £22 million. Just two years later, the world’s most expensive emerald The Rockefeller Emerald, weighing an impressive 18.04 carats, was sold for just over £4 million.
Many people aren’t as clued-up on these unsung heroes of the alternative investment world and their lucrative yields. Compare it to one of the more known alternatives, gold. One kilogram of gold has a value of approximately £50,000, whereas one kilogram of fine rubies is worth upwards of £150,000,000, making it 3000 times more valuable.
Which gemstones are best to invest in?
Leading the gemstone space in terms of value and growth potential are rubies, sapphires and emeralds, which have increased in value by 5-8% per annum since 1995. And their upward trajectory continues. When re-certifying our own gemstones through Gemological Lab Austria (GLA), one ruby was valued over 19% higher in November 2021 compared to its initial valuation in September the same year.
Similarly, upon re-certification in 2021, a selected sample of sapphires experienced an average increase of 15.7% compounding annually, with a 6.1 carat Sri Lankan Sapphire at the top end of the spectrum, which had a total increase of a staggering 194.1%.
Much of the rising popularity of coloured gemstones is due to the growing awareness - primarily via the internet, social media and marketing - but also due to developments in recent years that have boosted consumer confidence, such as widespread certification, further industry transparency, and gemological analysis.
And as a result of the Covid pandemic and the economic uncertainties that have followed, more people are seeking ways to make smart investment choices that will strengthen their portfolios and make more lucrative returns in the long run. Crypto has become one of the more popular alternatives for financially ambitious investors during this time, but it’s a highly volatile space and therefore comes with a lot of risk.
But the initial charm and excitement of investing in this space are beginning to wear off - Bitcoin for example has lost half of its value since hitting a record high in November 2021.
Taking coloured gemstones’ growing popularity in the last couple of decades and combining it with more financially curious and risk-averse investors entering the market, we can only expect these precious gems to increase even more in value over time and become a leading alternative investment option. They really are called precious for a reason.
About the author: Dr Thomas Schröck, CEO and Founder of The Natural Gem.
In 2021, the average payout for New York securities workers was $257,500 as deal-making and trading activity by big banks hit record levels amid surging global stock markets.
New York State Comptroller Thomas DiNapoli called the higher than expected figures “welcome news.”
In 2021, Wall Street contributed approximately 18% of all the taxes collected in New York. This is expected to help New York City trump its projections for income tax revenue.
"We have an April 1 budget deadline for the state, and this is welcome news,” DiNapoli said. “It gives them a little bit more breathing room.”
Several factors are expected to impact Wall Street bonuses this year, including record-high inflation, ongoing post-pandemic recovery, and the economic fallout from Russia’s attack on Ukraine. Presently, New York City and state are estimating that incentive compensation packages for securities industry workers in 2022 will drop by an average of 16%.
The survey, which polled 9,658 US employees between December 2021 and January 2022, found that 44% of workers are “job seekers”. Of this figure, 33% are active job seekers who looked for new roles in the fourth quarter of 2021. Meanwhile, 11% of this figure planned to seek out new roles in the first quarter of 2022.
The Great Resignation has proven a significant issue for US employers since spring 2021 when the economy began to recover as the worst of the coronavirus pandemic passed and demand for workers grew. In January 2022, 4.3 million Americans quit or changed their jobs, while employers reported 11.3 million job openings for the month.
“It is, by many measures, the tightest labour market ever,” said Julia Pollak, chief economist at ZipRecruiter. “Employers are having to play tug-of-war to get half an employee.”
“Flexibility and remote work are becoming more important [...] We’re already seeing that when asked to come back to the office, people are bolting to the exits in search of fully remote opportunities.”
Amid spiralling inflation, over half of the workers surveyed cited pay as a top reason for seeking out a new job. The survey revealed that 41% of employees would leave their current position for a 5% pay increase.
There is reported to have been a ‘staycation boom’ in the UK during the pandemic. This would make sense; after all, international travel has been fraught with additional complexity and cost, if not being rendered completely impossible for long periods over the past two years.
Indeed, it was recently reported that 39% of Britons would be more inclined to holiday in the UK post-pandemic. But the appetite for staycations was already well established before we had ever heard of Covid-19. A quick glance back to 2019 reveals that while 93 million Britons jetted overseas, whilst 123 million chose to holiday in the UK, suggesting that the ‘boom’ is simply an uptick in a stable domestic tourism industry – one that is worth over £1.6 trillion.
The strength of this industry, which is expected to grow further, has naturally impacted the property investment sector. Namely, more investors – particularly buy-to-let investors – are now considering holiday lets as a means of diversifying their portfolios. For those who fall into this camp, it is important to first understand the suitability of investing in holiday lets, including both the potential pitfalls and benefits that such an investment entails.
Reasons to be wary
Profitability – landlords acquiring a new property that they intend to use as a holiday let are likely to have paid an inflated price. Location is a very important factor in the success of a holiday let, and increased tourism in the last two years have pushed property prices up in tourist hotspots. Further, many properties will need furnishing and renovation to qualify as a holiday let. So, an initial outlay is common before income from holidaymakers starts to filter through; this could pose a potential barrier to some investors.
Running costs – with the cost of cleaning, energy and maintenance falling under the landlord’s remit, the regular turnover of guests creates some significant outgoing costs that can limit the money made on a property. Investors should also be aware that letting agents can charge between 20-30%, a necessary cost if they would prefer not to carry out the day-to-day management of the property. All these costs will eat into an investor’s yield.
Lack of guests – unfortunately, the old adage ‘build it and they will come’ is not a guarantee in the holiday let market. Despite sites like Airbnb creating easier platforms to market holiday lets, it is unlikely that properties will ever be at full capacity all year round. As holiday lets must be let for a minimum of 105 days to earn their potential tax benefits (more on this below), failure to attract guests could be disastrous to a property’s profitability.
Threat of regulation – with London capping short-term lets to just 90 nights a year unless planning permission is acquired, regulation in the holiday let industry is likely to increase. Areas like Cornwall and Bournemouth have seen incidents of 'over-tourism', and local councils may bring further regulation in to compensate.
Difficulty in finding finance – the relative insecurity of short-term lets makes borrowing from high street lenders difficult. As such, landlords could look for alternative financial backers. In doing so, lenders who underwrite on a case-by-case basis are essential to securing the best deal. Despite high-interest rates, variable discount rates and large down payments, investors and their brokers could consider their financial options as they hunt for the property itself in order to secure a deal that is most beneficial to their needs.
The benefits to be had
Those are the challenges, of which there are plenty. But that ought not to overshadow the potential upsides – again, there are numerous.
As many experts suggest, investment in different markets can maximise returns as each asset will react differently to market fluctuations. While it certainly does not guarantee against loss, diversification can reduce risk. The potential benefits listed below reflect why many landlords regard holiday lets as an increasingly interesting way to diversify their portfolios.
Tax benefits – if a property qualifies as a Furnished Holiday Let (as defined by HMRC), landlords are able to claim Small Business Rate Relief, thus avoiding council tax or business rates on their property and increasing the potential for profit. Furthermore, landlords can offset energy, cleaning and maintenance bills against their profits, reducing their tax bill further. If they choose to sell, they can even claim some capital gains reliefs, increasing the value of a holiday let as an asset.
Yields – as a result of these tax reliefs, and a rental price increase of 41% since 2020, holiday lets can make 30% more yield than a BTL property. With most aiming for a return of 8% annually and an average profit target of 30% (rising to 50% on properties without mortgages and letting fees), holiday lets begin to look like a credible alternative to an established portfolio.
Holiday home – the potential benefit that might have intrigued landlords the most during the pandemic is the opportunity to use a holiday let as a personal holiday home. To qualify for tax reliefs, holiday lets must be available to let for at least 210 days leaving landlords 22 weeks a year to use it themselves if they choose. With restrictions on international travel and a working from home order in place, the option to travel to a second home for free makes a holiday let an even more intriguing alternative to landlords.
Final thoughts
As restrictions ease and international travel continues its revival, it will be fascinating to see whether staycations remain as prominent, both in the media and with holidaymakers. For landlords considering a holiday let, they should weigh up whether they are capable of navigating the various pitfalls of the market. Those who are successful could certainly start to reap the attractive benefits a holiday let has to offer.
About the author: Paresh Raja is the founder and CEO of Market Financial Solutions (MFS) – a London-based bridging loan provider. Prior to establishing MFS in 2006, Paresh worked as a senior professional consultant in one of the top five management consultancy firms, and also set up an independent investment group.
The economy’s 7.5% expansion was the largest since 1941 and made the UK the quickest-growing advanced economy in 2021. In December, gross domestic product fell 0.2%, with the spread of the Omicron variant of coronavirus encouraging more people to stay at home.
These recent figures are encouraging amid the cost of the living crisis, likely keeping the Bank of England focused on efforts to restrain rocketing inflation with an interest-rate hike looming in the near future.
After being hit hard by a pandemic recession, the UK has enjoyed a strong recovery, accelerated by billions of pounds of government support for jobs and companies. At present, the country’s economy is set to outperform other Group of Seven nations yet again this year.
However, despite the positive sign that these recent figures reflect, the UK is yet to return to its pre-pandemic levels of quarterly output. This is a milestone already reached by both France and the United States.
