Recent years have seen a rise in the popularity of holiday lets, with huge interest from potential owners and holidaymakers alike. However, the holiday letting industry underwent substantial change in 2024, leaving prospective buyers and brokers wondering if it’s still wise to invest in a holiday let property.
2024 saw the government introduce various changes, which at first glance appear worrying for holiday let owners:
- Abolishment of furnished holiday lets (FHLs): Holiday lets with FHL status were regarded as a business and so granted certain tax advantages. This status will be removed from April 2025, meaning those tax benefits, such as being allowed to offset mortgage interest against profits, will be stripped.
- Planning permission: With some UK locations becoming over-popular with tourists, local councils have been given the power to demand planning permission from owners wanting to turn their property into a holiday let. Previously, people who wanted to rent their property to guests didn’t need to get the green light from local authorities. The government’s new rules allow local councils to remove this automatic right; in certain areas, individuals must apply for planning permission to turn a residential home into a holiday let.
- Increased council tax and stamp duty: Labour’s Autumn Budget included a stamp duty increase of 2% for people purchasing a second property. Plus, local councils have been given the authority to increase council tax on second properties that aren’t utilised for tourists. The choice is clear: turn the property into an operating holiday let or sell it to avoid a huge council tax bill.
What do these changes to the holiday let market mean for brokers?
These changes can seem alarming for buyers and therefore holiday let mortgage brokers. However, it’s important to observe such shifts within the wider context of the market, where it becomes evident that holiday lets are still a great investment opportunity.
Following the government’s changes, there’s been a surge of second homeowners selling their coastal and country properties. As a result, property prices have fallen and there’s now an abundance of quality homes on the market, providing a great opportunity for investors to purchase attractive properties at a great price. The potential savings far outweigh the increased costs of stamp duty and income tax, turning a negative into a positive.
What’s more, as owners sell their properties, the supply of holiday lets lessens, which in turn creates increased demand from holidaymakers booking their UK getaway. This leads to rental rates increasing for investors.
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Holiday lets still ‘attractive’ to lenders
Holiday let mortgages remain attractive to lenders. The properties are generally low risk for mortgage providers, and applicants are solid prospects with good financial history. Furthermore, at the time of writing, many economists predict four further rate cuts to the Bank of England base rate, thus creating a better outcome for investors.
To conclude, considering these facts together, it’s clear that the holiday market remains strong.
At Holiday Cottage Mortgages, we’re experiencing a surge of interest from potential buyers compared with this time a year ago.
While the industry is changing, the future looks to be positive for buyers and brokers alike. For people hoping to purchase their dream property, now’s the time to start the search.
