Our new Labour government has brought with it concerns about potential tougher capital gains tax rules. At the same time, non-doms are wondering if theirs might be the shoulders to bear the “heaviest burden” that UK Prime Minister Sir Keir Starmer is warning about ahead of the October budget. 

But is it all doom and gloom or are UK holiday lets still worthwhile, high-yield investments for individual and portfolio landlords? 

Rise in financing options

Mortgage options for holiday let landlords are on the rise. Compared to last year, August 2024 saw a 23% increase in holiday let mortgage availability, according to Moneyfacts. 

It also says that within the same period, the average fixed rate available for holiday let mortgages dropped from 7.16% last August, to 6.20% in August 2024. 

A further two lenders have entered the market in the past year, bringing landlords a choice of 34 lenders and more than 400 holiday let products to suit their needs. Among these options, Molo’s innovative digital-first approach provides first-time buyers and landlords.

High consumer demand

Consumer demand is still high for domestic holidays. 

Many UK households continue to consider elevated living costs problematic, and are likely to continue to do so for a while, as we acclimatise to them. 

For some, a staycation also has the feel-good factor of being more eco-friendly than flying to another country, which is hugely polluting. So choosing a sustainable holiday in the UK is a great way to reduce the negative impact we have on the natural world.

Domestic holidays proved popular in Spring 2024, says research from Go.Compare Travel Insurance, when a third (33%) of Brits said they were opting for a staycation this year instead of international travel. According to Mintel, the share of Brits staying in a holiday rental property has reached its highest level ever, with spending estimated to reach £3 billion in 2024. 

According to the Office for National Statistics , overseas holiday-makers are also on the rise. 15.9 million holiday visits to the UK by overseas residents accounted for 42% of the total number of UK visits which also include, for example, business visits.

In 2023, the number of overseas visitors rose to 38 million compared to 31.2 million the year before. While this is still 7% lower than pre-pandemic levels of 40.9 million, I don’t think it would be unreasonable to suggest that 2024 figures will continue the upward lift. 

Higher yields

According to Hamptons research, landlords who remain in the buy-to-let (BTL) business are finding yields strong and in some cases have even improved. The research shows the average gross yield for new investors buying BTL properties in England and Wales this year to be 7.3%, which is up from 7.0% in 2023.

Compared to regular lettings, however, holiday let landlords can earn significantly more revenue – particularly if they’re in a desirable location or holiday hotspot. 

The Mintel survey found holiday rentals to show the highest growth potential of any accommodation type surveyed. 

While holiday bookings are seasonal, online businesses like Airbnb and local tourist boards can help increase bookings, as they offer third-party endorsement for people unfamiliar with the area. With Airbnb, for example, landlords can also arrange for shorter lets during off-peak season or during slow periods. 

Potential tax benefits 

Unlike a traditional residential buy-to-let property, HMRC currently views a holiday let as a business rather than an investment, so landlords may receive some tax breaks. 

Be aware though, that on 6th April 2025, the government will abolish the Furnished Holiday Lettings (FHL) regime for income tax and capital gains tax (CGT). 

This will remove the current tax advantage for landlords who let out short-term furnished properties as opposed to those who let out residential properties to longer-term tenants. Legislation is still in draft, however.

Ultimately, with demand for holiday rentals remaining strong, yields being maintained well and the real potential for capital growth on property, holiday letting remains a highly lucrative investment that offers substantial returns, when chosen wisely.

• Martin Sims is Distribution Director at Molo Finance *