With the UK economy shaking off the effects of the credit crunch, riding out the Scottish independence referendum and now coming to terms with last year's Brexit vote, we have seen a period of economic uncertainty that is almost unprecedented in modern times.
Historically, the British have traditionally looked to bricks and mortar as a haven in such times. Knowing that, we investigated changing consumer behaviors using our own quote data and found that a growing number of people have invested in the holiday home market.
Our data shows that what was once the preserve of aging retirees looking for a quiet place to spend their golden years is being usurped by a growing, younger market. One that is perhaps better placed than many to weather future financial shocks and one that might be changing the face of retirement as we know it.
As safe as houses?
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Holiday homes are a valuable window into the state of the UK economy. When we mapped our quote data against almost every economic indicator, we saw that in periods of slowdown, there’s a corresponding increase in the number of customers asking for insurance quotes for holiday homes.
For example, in 2012-2013 the spike in the number of customers we saw insuring their holiday homes looks like a direct response to the worsening financial climate when compared to the Consumer Confidence Index in the UK. At the time, the British economy narrowly avoided an unprecedented triple dip recession and consumer confidence was running low. Brits were looking to property as a relatively safe investment.
Fast-forward to 2016-2017 and Brexit brings a new year of economic volatility. In the case of holiday homes, the flight towards property played out as we expected. As the value of the pound and consumer confidence plummeted, more people poured their money into property. The rapid fall in the value of the pound no doubt made UK holiday homes more attractive to investors, but we suspect the biggest reason for our large spike comes more from the Treasury than the Brexiteers.
Holiday homes became a more attractive investment than traditional buy-to-lets, as they were exempt to the changes in stamp duty announced in November 2015. However, it was the sweeping changes to pension law that allowed a glut of people just before the retirement age to flood into the market.
Unlocking pensions rejuvenates property investments
As far as HRMC is concerned, holiday homes are a business rather than a second dwelling. This means that if an owner lets the house to visitors for at least part of the year, they can avoid many of the property taxes levied on second homes. So, the stamp duty changes announced in November 2015 largely bypassed holiday homes, making them an even more attractive investment.
Then, on April 6th 2016, the Government allowed people aged 55 and over to unlock a large portion of their pension to use as they wished. While most planned to use this to pay off existing debts, a Telegraph Money survey at the time found that 26% of retirees planned to invest their pension into property.
A prediction for 2025
Since April 2016 the holiday home market seems to be shifting with younger pre-retirement buyers starting to snap up property in ever larger numbers. 2016 saw the 56-65 age group grow rapidly, showing how a combination of economic uncertainty and tax changes has led to more Britons viewing a holiday home as a useful nest egg for retirement. However, in the past 2 years, the fastest growing group has been the under 55 group, almost doubling in size between 2015 and 2016.
Clearly, holiday homes are starting to be viewed as much as an investment opportunity as they are a retirement perk, and if this trend continues, we expect younger buyers to outnumber retirees by 2025.
Business or pleasure?
2016 also saw a large increase in people asking to insure holiday homes open to non-family guests. The last 12 months have seen almost a 100% increase in the number of people quoting for guesthouses compared to the years between 2013 and 2015 combined! As the age of retirement increases, perhaps running a small business like a guesthouse has become more attractive for older couples?
Data we sourced from YouGov, revealed that 16% of recent retirees would love to start their own business and this has been roughly played out in our data. When we looked at ONS data by employment type, 2016 saw a significant increase in the number of self-employed workers in the guesthouse and B&B sectors. This tracks surprisingly close to the trend we are seeing in quotes received for customers looking to insure holiday homes open to guests.
Investigating further by looking at historical listings on HomeAway.com, we've also seen that there has been an increase in the listings of holiday homes in Cornwall, Norfolk and Gwynedd, three popular locations for retirement age holiday home owners. With the pound weakening and more Britons choosing staycations in the UK rather than traveling abroad, holiday homes could also be one of the growth industries of the next few years.
While we can't tell the ages of people listing on HomeAway, figures like this suggest that retirement might be being replaced by some sort of semi-retirement. The 2016 changes allowed Britons to unlock a large portion of their pension pot early, but the changes also effect the security of pension payments. This means that many people who chose to access their savings early may have less to draw from in retirement. Rather than retiring later in life, it would appear many people are choosing to start a low-labour, steady home business like a holiday home open to guests to supplement their income.
With an entrepreneurial spirit and access to capital, more retirees are opting to run a small business to complement their pension earnings.
Find out more about holiday home insurance with HomeProtect.