Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Solutions. Read the original article for full details.

Holiday Let Investors Adapt to Tax Changes, Maintain Market Strength

Holiday let investors have largely remained in the market and adapted their operations following the abolition of the furnished holiday let tax relief, according to research from The Cumberland. The inaugural Holiday Let Index found that many investors reported increased profitability despite the tax changes.

The furnished holiday let tax regime was scrapped in April, removing the ability for investors to treat their properties as commercial assets. This change meant investors could no longer claim capital allowances on certain purchases and saw a reduction in mortgage interest relief. Despite these changes, 48% of holiday let investors reported improved profitability, with a third seeing rises between 1% and 15%. Meanwhile, 27% said their profitability had declined by the same margin.

To offset the impact of the tax changes, 47% of investors increased their nightly rental rates and 46% worked to boost occupancy. Over a third reduced maintenance and capital expenditure, and around a quarter changed their management approach. Other responses included switching to interest-only mortgages (19%), reducing portfolio size (15%), and transferring properties into limited companies (11%).

The research also found that 86% of holiday let investors continued to achieve gross yields above 5%, with over a third reporting yields of 7-8%.

Planning and Regulatory Pressures

Proposals to introduce a C5 planning use class for short-term holiday lets could influence future investment decisions. The research found that 56% of investors would consider selling if such planning restrictions were introduced. Council tax premiums were cited by 72% of investors as having the biggest influence on their decisions, followed by mortgage interest relief (70%), the removal of the furnished holiday let regime (67%), and capital allowances (67%). Compliance requirements were also a key factor for 62% of investors.

A More Professional Sector

Mortgage brokers reported a shift towards more experienced and professional investors in the holiday let sector. According to the research, 36% of brokers said their clients had become more experienced, 16% noted a focus on steady income and long-term gains, and 8% reported clients with larger portfolios. The use of limited company structures was also significant, with 48% of brokers saying a quarter to half of their clients used one, and 44% saying this was the case for half to three-quarters of their clients.

Despite some increased caution in borrowing, with 24% of brokers noting this trend, investor confidence in the holiday let market remains strong. The research found that 61% of investors had good or very good expectations for future yields, and 57% felt positive about their future prospects.