"For a property to qualify as a holiday let, it only needs to be available to rent for 210 days a year, providing lots of opportunity for an expat to potentially use it for themselves the rest of the year."
While Chancellor Jeremy Hunt’s Budget announcement to end certain tax breaks for furnished holiday lets (FHLs) is unwelcome for investors, I don’t believe it will significantly discourage them from what still remains a profitable investment.
From April 2025, FHL owners will no longer be able to reduce their tax bill by offsetting some of the costs associated with running their holiday let, such as their mortgage interest payments - a move the Chancellor says will help raise £300 million towards paying for other tax cuts.
He also hopes it will encourage more long-term rentals for local people in holiday hotspots.
While the announcement will be disappointing for holiday let owners, I expect we will still see demand from existing landlords looking to diversify into holiday lets, as well as from expats.
For expats, a UK holiday let can make more sense than a traditional buy-to-let. Not only do they benefit from a regular income, but they also have a place to stay when visiting the UK. They may be renting out their own home in the UK, which makes it difficult to return as and when they please.
For a property to qualify as a holiday let, it only needs to be available to rent for 210 days a year, providing lots of opportunity for an expat to potentially use it for themselves the rest of the year.
The challenge for many borrowers when looking to buy a holiday let is finding the right lender. Holiday let mortgages and expat mortgages are two specialist areas. Expats are based overseas, often earning in a different currency, self-employed, or older in age, so it’s perhaps not surprising that many traditional lenders are reluctant to lend in such scenarios.
However, specialist lenders like ourselves can work with brokers to find the best solution for your client.
Holiday lets have become somewhat of a divisive issue of late, so much so that we recently saw one mortgage lender restrict lending on holiday lets in two popular holiday destinations.
There are always two sides to every coin however, and even after Jeremy Hunt’s recent Budget announcement, many tourist destinations have spoken out in favour of holiday lets and the business and boost to the local economy they bring.
Politics aside, holiday lets still represent a great investment and are a great way for expats to stay connected to their home country while generating an income.
With some lenders pulling back from the holiday let market, it’s even more important for lenders such as ourselves to be here to help brokers and their clients with their holiday let mortgage needs.
Since Covid, Brits’ love of the staycation has seen demand for holiday rentals rocket, with the average annual turnover of a UK holiday let reaching £24,000 in 2022, which was up 59% compared to 2019, according to Sykes’ Holiday Letting Outlook Report 2023.
Although a long-term rental might offer a more hands-off approach for investors, holiday lets have the potential to provide a greater return on investment, and investors also benefit from capital appreciation over time - especially one in the right location.
On average, holiday let owners invest £7,400 per year in their holiday let – minus mortgage repayments - according to Sykes’ report. However, pick the right location and the amount an investor charges can be substantially more than what a standard buy-to-let would make. Even if a holiday let owner rents it out for only 36 weeks of the year, holiday lets can still produce healthy returns. For example, a four-bed holiday let in Cheshire, costing £256,526, could garner an annual revenue of £45,549, according to Sykes' report.
Analysis by TaxWatch shows the owner of a property earning £30,000 in rent can pay £4,000 per year less in income tax through the FHL regime, so while the announcement in the Budget will make a dent in profits, a holiday let can still offer great returns.
There are an estimated 73,000 holiday homes in Great Britain and I don't think our love of holidaying at home is going anywhere soon. Holiday lets and the demand for them are here to stay and we are here to help brokers and their clients with their holiday let needs.
