Council tax shapes holiday let owners’ decisions

Council tax premiums are influencing whether nearly three-quarters of holiday let owners participate in the market, research reveals.

Cumberland Building Society’s latest Holiday Let Index found that 72% of owners reported a major or moderate influence from premiums on second homes and holiday lets.

Of those, 31% described that influence as being ‘major’, while 41% said it was ‘moderate’.

Also, the removal of full mortgage-interest relief affected decisions for 70%, with the abolition of the Furnished Holiday Let tax regime and changes to capital allowances each highlighted by 67%.

Holiday let tax pressures

Grant Seaton, Cumberland’s head of intermediary lending, said: “What these findings show is that the decision to invest in a holiday let is being influenced by far more than the property itself.

“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.”

He added: “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.”

Planning restrictions and borrowing

Among the 92 respondents who answered a question about a possible C5 planning class restricting holiday let numbers locally, 55% said they would be very or somewhat likely to sell.

Higher borrowing costs would leave some owners close to breaking even: 27% said that would be their position if their mortgage interest rate rose by another percentage point over the next 12 months.

However, 40% said their holiday let would remain viable despite reduced profits, while 15% would need to change their approach through pricing or cost reductions.

On registration, 84% said they were prepared for the National Registration Scheme, compared with 16% who were not.

Cumberland’s PASC tie-up

Meanwhile, Cumberland has announced a partnership with the Professional Association of Self-Caterers (PASC UK) to expand its support for holiday let businesses.

The mutual will provide finance expertise to members and inform the trade body’s lobbying on finance issues affecting short-term and holiday let lending.

PASC UK represents the professional holiday let sector at Westminster and in the Senedd.