Council tax premiums on second homes and holiday lets rank among the biggest influences on holiday let owners’ decisions about their future in the market, according to new research from Cumberland Building Society.
Its inaugural Holiday Let Index suggests owners are responding to a series of changes affecting the cost and regulation of running a holiday let.
Council tax premiums lead the list
Nearly three-quarters (72%) of owners surveyed said council tax premiums had a major or moderate influence on their decision to participate in the market. That included 31% who described the influence as major and 41% as moderate.
The concern extends beyond council tax. Some 70% of owners cited the removal of full mortgage-interest relief as a major or moderate influence, while 67% said the same about the wider abolition of the Furnished Holiday Let tax regime. Changes to capital allowances influenced 67%, and increased reporting and compliance requirements influenced 62%.
The research also comes against the backdrop of further tax changes in the government’s Autumn Budget. From April 2027, income tax rates on property income will rise by a further two percentage points, taking the basic rate to 24%, the higher rate to 44% and the additional rate to 49% in England, Wales and Northern Ireland.
For holiday let owners whose profits face property income tax, the changes could add pressure to returns at a time when many are still adjusting to the abolition of the Furnished Holiday Let regime. The announcement adds to the financial considerations owners face as they assess the long-term viability of their properties.
Regulation and borrowing costs
Further changes to holiday let regulation could also influence owners’ decisions. Among the 92 respondents who answered a question about a possible C5 planning class restricting the number of holiday lets in their area, 55% said they would be very or somewhat likely to sell their property.
However, the Index found that many holiday let businesses retain some capacity to absorb higher borrowing costs. Asked what would happen if their mortgage interest rate rose by a further one percentage point over the next 12 months, 40% said profits would fall but the holiday let would stay viable. Another 27% said they would be close to breaking even.
Some owners would need to make bigger changes. About 15% said they would have to adjust through pricing or cost reductions, 7% said they would be likely to convert their property to a long-term rental, and 3% would be likely to sell. Just 6% said a one-percentage-point increase would have no impact on their ability to keep operating.
The research suggests most owners are already preparing for the next stage of regulation. Some 84% said they were prepared for the National Registration Scheme, compared with 16% who were not. Overall, the findings point to a holiday let market adapting to a changing tax, policy and borrowing environment, with owners weighing the effect on the long-term viability of their properties.
For the research, holiday let owners comprise private landlords with at least one mortgaged holiday let and homeowners who own their own home alongside at least one mortgaged holiday let. Pegasus Insight co-ordinated the Index through an online survey of 125 respondents across the UK, made up of 25 mortgage brokers, 50 private landlords and 50 homeowners.
“What these findings show is that the decision to invest in a holiday let is being influenced by far more than the property itself,” said Grant Seaton, head of intermediary lending at Cumberland Building Society.
“Owners have already had to contend with considerable changes to the tax treatment of holiday lets, and the latest Budget announcement means those whose profits are subject to property income tax could face another increase in their tax bills from April 2027.
“I think it’s important, though, that we don’t lose sight of the contribution holiday let businesses make to local economies. In areas such as Cumbria and the Lake District, tourism is a major source of income, and holiday accommodation plays an important role in attracting visitors who then spend money in local shops, restaurants and other businesses. These are often small, independently run operations, and their contribution to the wider hospitality sector shouldn’t be overlooked.
“Location could therefore become an even greater consideration. Properties with similar purchase prices and rental potential could face different costs or restrictions depending on the local authority they sit within, so understanding the local position is becoming a much bigger part of assessing whether an investment stacks up over the longer term.
“There’s also evidence of resilience within these findings. Four in ten owners believe their holiday let would remain viable even if their mortgage rate increased by another percentage point, albeit with reduced profits. That suggests many are prepared to adapt to difficult conditions, although there’s clearly a limit to how much additional cost any business can absorb.
“That also makes the broker’s role broader than establishing whether a mortgage is affordable at the point of application. Understanding how the borrower might respond if their costs rose or local rules changed can be just as useful, because those pressures can affect the long-term viability of the property even when the initial numbers look sound.”
