Policy and tax changes are playing an important role in decisions made by holiday let owners about their future in the market, says the Cumberland Building Society.

Nearly three-quarters (72%) of owners surveyed said council tax premiums on second homes and holiday lets had a major or moderate influence on their decision to participate in the market. 

This included 31% who described the influence as major and 41% as moderate.

The findings suggest this is not an isolated concern. 

The removal of full mortgage-interest relief was cited as having a major or moderate influence by 70% of owners, while 67% said the same about the wider abolition of the Furnished Holiday Let tax regime. 

Changes to capital allowances influenced 67%, while increased reporting and compliance requirements influenced 62%.

The research also comes against the backdrop of further tax changes announced in the Budget. 

From April 2027, income tax rates on property income will increase by a further two percentage points, taking the basic rate to 24%, the higher rate to 44% and the additional rate to 49% in England, Wales and Northern Ireland.

For holiday let owners whose profits are subject to property income tax, the changes could place further pressure on returns at a time when many are already adjusting to the abolition of the Furnished Holiday Let tax regime. 

Among respondents who answered a question about the possible introduction of a C5 planning class restricting the number of holiday lets in their area, 55% said they would be very or somewhat likely to sell their property.

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. A further 27% said they would be close to breaking even.

For some owners, higher rates would require a more significant change. Some 15% said they would need to adjust their approach through 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. 

Just 6% said a one-percentage-point increase would have no impact on their ability to continue operating.

While the research shows that regulation and rising costs are influencing decisions across the sector, it also suggests that most owners are already preparing for the next stage of regulation.

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