Index shows impact tax and regulatory change is having
Policy and tax changes are increasingly deciding whether holiday let owners stay in the sector or not, according to new research from Cumberland Building Society.
Its inaugural Holiday Let Index highlights council tax premiums as having the biggest impact, with nearly three-quarters (72%) of owners surveyed saying that such premiums on second homes and holiday lets were a major (31%) or moderate influence (41%) on their decision to participate in the market.
Other tax changes were also cited as having a major or moderate influence, including the removal of full mortgage-interest relief (70%) and the wider abolition of the Furnished Holiday Let tax regime (67%). Changes to capital allowances influenced 67%, and increased reporting and compliance requirements 62%.
Since the survey, the government has also announced an additional two-percentage-point increase in income tax rates on property income, revealed in the Autumn Budget.
The impact of regulation on holiday let investment
Regulation is also influencing holiday let owners. Among the 92 respondents who answered a question about the possible introduction of a C5 planning class restricting the number of holiday lets in their area, more than half (55%) said they would be very or somewhat likely to sell their property.
However, the Index also found that many holiday let businesses retain some capacity to absorb higher borrowing costs. Asked what would happen if their mortgage interest rate increased by a further one percentage point over the next 12 months, 40% said their profits would reduce but their holiday let would remain viable, while 27% said they would be close to breaking even.
However, 15% said they would need to make pricing or cost reductions, while 7% said they would be likely to convert their property to a long-term rental and 3% would be likely to sell. Only 6% said it would have no impact on their ability to continue operating.
Meanwhile, 84% said they were prepared for the National Registration Scheme, compared with 16% who said they were not.
Grant Seaton, head of intermediary lending at Cumberland Building Society, 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.”
The Cumberland’s Holiday Let Index was co-ordinated by Pegasus Insight through a quantitative online survey of 125 respondents, comprising 25 mortgage brokers, 50 private landlords and 50 homeowners from across the UK.
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