New Planning Rules For Holiday Lets

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    Our nations desire to enjoy a UK break and book a gorgeous cottage for a family holiday has never been more popular and whilst there are countless positives to this, there has been a growing concern about the influx of short-term lets for two reasons.

    Firstly, there are huge issues concerning the lack of available housing as our population continues to grow and so concerns exist that first-time buyers are struggling to purchase a house because properties are being snapped up by landlords. Secondly, that residents in popular locations feel that their hometown is being overrun by tourists and not enough people actually live there to provide local support services such as doctors or teachers.

    For these reasons, it’s recently been announced that new measures are being introduced which allow local councils to better control the addition of more holiday let properties in their areas. Where it is deemed necessary, to protect the amenity or wellbeing of the area, and there is evidence to support it, owners may have to seek planning permission in order to operate a short-term holiday let in certain hot spots.

    Holiday Cottage Mortgages, the UK’s leading mortgage broker for holiday lets, believes that devising a set of rules and processes to investigate and control the number of holiday lets in those particular tourist hot spots is a good idea, and are in support of the principle, so long as it is applied sensibly and considers the benefits and risks to all aspects of the communities it affects. Done incorrectly, with wide areas targeted for restriction, it could be very damaging to individuals, businesses, and the economy of entire tourist areas.

    In this interview, Holiday Cottage Mortgages’ founder Andrew Soye shares his thoughts on the new proposition.

    Why has the government taken this action?

    These new policies have been designed to give councils more control over the use of housing in their areas.

    This requirement has arisen due to certain hotspots emerging where the ratio of regular housing to second homes and holiday let properties has gotten out of control and with the new policies in place, the councils can now take action and better control the number of new holiday lets in their postcodes.

    Is there really a problem with the UK holiday let industry?

    Generally speaking, no. Contextually, there are around 26 million properties in England and Wales, and only an estimated 350,000 – 400,000 are running as holiday lets, which is roughly 1.5%. So, in the large majority of the country, the holiday letting industry is so diluted that issues regarding housing stock and impact on the local community are effectively immaterial and no action is needed.

    However, in some very specific parts of the country, such as Scarborough, Southwold and St Ives, the ratio of holiday lets to regular housing stock is too high and is causing the ‘hollowing out’ effect issue as noted by the Government.

    So, the issue is really one that occurs in very specific pockets of the country. I think it’s imperative that we understand this fact, as it will make a huge difference in how the Government’s proposed solution will work.

    The Government has announced new controls on holiday lets, what are they?

    The new controls fall into two categories:

    Firstly, a new, low-cost and national register to keep track and monitor holiday lets which will give councils better information about short-term let properties in their area.

    Secondly, the introduction of a new planning class called: ‘C5 Short Term Let’. Properties are placed into different ‘classes’ – C1, C2, C3 etc – that define how a property is to be used. A residential house is known as a ‘C3 Dwellinghouse’. Mortgage lenders are very specific and will not normally lend their regular mortgages against any property that isn’t a C3. For example, they wouldn’t lend against an office block because it’s a commercial building.

    In the past, to run a holiday let, you’d buy a residential property, get a holiday let mortgage on it, and start renting it out to guests; you don’t specifically need to ask anyone’s permission to do so (so long as you have the correct mortgage, of course!). What the Government is now proposing is that you must switch from C3 to C5 status before you can begin holiday letting and in certain areas, councils may insist that you have to apply for permission to switch, via the planning application process, and they may well reject that application if they deem there to be a local issue with over-supply of holiday lets.

    What about existing holiday lets?

    The Government has confirmed that existing holiday lets will not be affected and will automatically be reclassified to C5 without requiring a planning application, a bit like ‘Grandfather rights.’

    So, people who buy a new holiday let or convert an existing property to a holiday let, between now and when the new rules come into effect, should be assured automatic permission to continue to run that holiday let regardless of where it is.

    Furthermore, property owners will still be permitted to let out their main residential home for up to 90 nights a year, through platforms such as Airbnb, and will be excluded from these new rules.

    Do you think the new rules are a good idea?

    Monitoring and controlling the number of holiday lets in certain hotspots is a great idea, so I’m in in support of the new rules – but there’s a but! The but is: only if the rules are applied sensibly, targeting those tightly defined geographic areas that suffer from an over-abundance of holiday lets and considering the benefits and risks to all aspects of the communities it affects so we are not trying to fix one thing whilst breaking another.

    For example, imagine a seaside town where local businesses such as shops, attractions, cafes and restaurants rely on holiday makers for income. They need customers who’ll happily pay for meals out, fancy coffees and cakes because they’re on holiday, who will treat themselves at gift shops for the same reason. These business owners simply won’t make the same money from locals and so will suffer if holiday lets are taken away and with them, their custom.

    I also think that the application of these rules should be staged rather than taking a blanket approach. By this I mean that the Government’s consideration should be targeted first at empty second homes and low-use or ‘hobby style’ holiday lets that produce little by way of tourism. These properties should be looked at before attempting to restrict those productive holiday lets that do generate local business. The new register can be of potential use here for councils.

    What would you like to see in the new rules, as the specific details are written by policy makers?

    Personally, I would first like to see some very specific rules concerning the council’s ability to apply what is known as an Article 4 direction, to revoke the automatic right to switch from a C3 to C5.

    In particular, when councils apply for an Article 4 direction, each case should be reviewed in detail by the Government. This would be to confirm that the area identified is specifically defined and proven to be an area that is suffering due to the over-population of holiday lets. I do not think it would be sensible to simply apply this revocation without first proving there is an issue.

    Furthermore, the geographical area chosen for restriction should be as small as possible: streets or even individual properties, rather than whole towns or boroughs. The Government actually stated this in its consultation last year. If large areas or towns or boroughs are selected, the effect of the new rules would be to damage areas that are not part of the problem.

    Within the chosen areas, those service providers that benefit or rely on tourism generated by holiday lets (such as pubs, restaurants, activity centres, attractions and so on) should be consulted and be part of the process. The status of these businesses is after all, very important and any changes from the council should not have an unreasonably detrimental knock-on effect for the community.

    Once a council has implemented the planning permission route for new holiday lets in their area, then I think the council should publicly publish which areas are subject to planning permission, so prospective buyers know in advance that any application to convert from a C3 to C5 will be subject to the planning process. Otherwise, there’s the risk of somebody buying a property with the intent to use it as a holiday let, only to find out that they’re not allowed and thus have a useless second property.

    I also think that councils should consider the creation of a new type of planning function to handle these type of requests. Existing planning departments are already stretched to capacity with regular planning applications, and these type of planning applications are very different and should be specifically tailored to this process to ensure they focus on the right things, such as:

    • Allowing applications to be made prior to property ownership. This will significantly help with mortgage lenders who will be wary of approving a holiday let mortgage application where there’s the possibility that a holiday let will never actually operate.
    • Providing a quick ‘decision in principle’, ideally within a few days, to help buyers and lenders know if planning permission for a holiday let is likely to be granted.
    • Proper handling of public objections to a new holiday let. For example, be ready to handle objections such as:
      • People who simply don’t want a holiday let “on their patch”. This type of objection can be entirely unmerited where residents fear unruly guests, whereas in reality, the addition of a holiday let is unlikely to affect them in any way.
      • Objections about things that have not happened and may never happen from potential guests, such as anti-social behaviour, excessive parking of cars, too much noise, and so on.
      • Existing holiday let owners in the same location, objecting to prevent dilution and competition against their own bookings!

    How will this impact holiday let mortgage lenders?

    Straight away, lenders will have to get their heads around the new requirement to lend against the C5 Short-Term Let class. This class doesn’t exist at the moment, so the entire process will be foreign to them. I don’t think that this should be a problem, so long as lenders can see that the underlying property is/was a regular C3 Dwellinghouse and as such, there will be no impact on resale.

    Lenders will also need to think about how to underwrite transactions where planning permission will be required. For example, by offering a contingency plan where the owner can switch to buy-to-let if planning permission for a holiday let fails. Or, by verifying that the applicant has enough liquid savings to service the mortgage payments through the initial term of the mortgage, regardless of planning rights.

    What are your closing thoughts?

    In summary, I think the government’s proposed new rules could work really well at tackling local holiday let hotspots. That being said, it’s vital that great care is taken to ensure that innocent areas are not punished by applying the rules too widely. Where there is evidence of a local issue, the permitted development rights may be removed, but this should apply to the smallest geographical area possible, to be focused on those areas or even streets that see the highest numbers of short-term lets.

    I would strongly advocate a staged approach where we firstly establish the new register of holiday lets to gather data and monitor booking levels. By doing this, we can determine the level of actual productivity so that councils can build a more detailed and useful map of the local area and see clearly which properties contribute (or not) to the local community, and the number of local services which might be impacted by changes to tourism levels.

    Only then do I think that the government should phase in the proposed planning application processes, focusing on those specific target areas that have the greatest overall impact on the communities. The government should ensure that the application process for Article 4 and the subsequent processes and publications made by councils are practical, helpful and proportionate.

    Time should also be given to mortgage lenders to help them re-engineer their products and lending criteria to take into account new property use classes and processes.

    Important Notice:

    Holiday Cottage Mortgages Limited cannot provide you with legal or planning advice, and the above should not be taken as such, rather as a prompt of the issues involved for further consideration. As always, please read the relevant laws, regulations and guidance and seek advice from external experts where you require it. We shall not be liable for any loss of damage arising under or in connection with any action or decisions you take or do not take as a result of reading the above or any loss suffered as a result.
    Andy Soye Profile Photo

    Andy Soye

    Founder @ Holiday Cottage Mortgages
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