Holiday Lets in 2025 – Still Worth Investing In?

2024 has been a year of change for the holiday letting industry. We’ve seen local councils being given the power to demand planning permission for new holiday lets; the government’s abolishment of furnished holiday let (FHL) rules; and labour’s autumn budget which increased stamp duty for second home purchases.

The question is, in light of such changes to the market, are holiday lets still good investments?

What’s the objective of owning a holiday let?

The desire to own a holiday let is generally twofold. Firstly, the owner has the advantage of having their very own “home away from home” where they can enjoy holidays with family and friends. Secondly, there’s great potential to generate a healthy income from paying guests. Put these together and it’s a win-win: owning a holiday let means having a beautiful home to visit at your leisure, whilst being happy in the knowledge that this home also makes you good money over the long term.

Let’s not forget that purchasing a property is in itself generally considered to be a sensible financial investment. It’s the norm for a property’s value to increase over long periods of time and thus when you’re looking to sell, there should be a profit on your initial property investment.

Fundamentally, none of the recent changes to holiday letting have changed this initial strategic objective. Furthermore, the business model for holiday lets hasn’t changed. Looking back to our original article on this subject, we discussed two key aspects of the business model:

• How to maximise your revenue from your holiday let bookings.
• How to impress guests by fulfilling those bookings, with regards to excellent housekeeping and customer service.

Neither of these factors has changed and vitally, both are still attainable for holiday let owners in today’s market. Maximising revenue can be achieved through professional marketing and a sensible pricing strategy, while fulfilling guests’ expectations is down to the owner working to maintain their holiday home to an outstanding standard. Think luxury amenities, deluxe furnishings and a friendly service. The demand for UK holidays remains; if holiday let owners put together a proper business plan and maintain high standards which exceed guests’ expectations, there’s great chance of success.

So, despite the government’s changes with regards to second home ownership and holiday letting, the core components remain the same: people are buying holiday lets with the same goals in mind and should employ the same business strategy to achieve success. However, due to the current climate, many people will still have doubts about whether becoming a holiday let owner is still worth it.

What’s going on in the holiday let market?

Thankfully, the holiday letting market remains very strong and as such, it’s entirely possible for holiday let owners to make a solid operating profit. The demand from holidaymakers to stay in beautiful homes in lovely locations across the UK remains very strong. It’s a great alternative to a B&B or a hotel, and in particular, suits families and couples who prefer a homely feel whilst on holiday.

Joby Mussell, Chief Commercial Officer at holidaycottages.co.uk commented “Demand for bookings across the UK are buoyant. Over the last 30 days, bookings taken per property are up 10% vs last year, and this includes bookings in the short term – where this Christmas is up 12% vs last year – as well as longer term demand, with summer 2025 already taking 9% more bookings than this time last year. Every corner of the UK is seeing strong demand, with the Peak District, Yorkshire and Scotland doing particularly well where bookings are up 24%, 19% and 16% respectively”.

It’s also important to note that as the British pound falls in value, the UK becomes an even more attractive destination for holiday makers from overseas. Holiday let properties and Airbnbs are ideal for travellers who want their own base for exploring the country. Increasingly, people want the comfort of having plenty of space and the option to cater for themselves, rather than having just a bedroom and bathroom with no cooking facilities.

How have things changed for buyers?

The government has made changes to the way in which holiday lets are managed – the abolishment of FHL rules and the introduction of planning permission – plus the costs involved in buying a second property – introducing council tax rises for pure, non-rented second homes.

As a result of these changes, there has been a surge in property sales and an overall reduction in property prices. Let’s address these in more detail.

Stamp duty increase

Labour’s autumn budget 2024 means an increase in stamp duty land tax (SDLT) for people purchasing a second home. This means that buyers have to pay an extra 2% on additional properties which can equate to several thousand pounds. That being said, potential buyers should be aware not only of the SDLT rules, but the wider context of the situation.

While the budget has increased SDLT on second properties, it has also changed the regulations around council tax for second home owners. Local councils have been given power to increase council tax for people who own a second residential property and don’t rent it out to tourists. As such, people in this situation are faced with a much larger council tax bill, unless they turn the property into a holiday let or sell the property.

The result is that there’s been an influx of people selling their second properties and a fall in house prices. The good news for potential holiday let owners is that there’s now an abundance of lovely homes on the market, at a lower cost that would previously be possible. The potential saving here far outweighs the increased cost of stamp duty. So, what appears at first to be a problem is in reality, anything but!

Removal of FHL status

Where holiday let properties were once regarded by the government as a business and given an FHL status (subject to them meeting specific criteria), 2024 has seen the announcement of the future removal of these FHL rules. As such, from April 2025, holiday let owners cannot benefit from certain tax advantages that they could when operating their property as an FHL.

This punitive move by the government means that it may become more expensive to run a holiday let property. For example, where before the owner could offset their mortgage interest against their profits, this is no longer permitted.

As has been the reaction to changes in council tax, the abolishment of FHLs has caused people to sell their second properties, meaning there’s an abundance of high quality properties on the market. Plus, as the supply of holiday rentals reduces, there’s more demand from the public for those which are left operating and as such, owners can increase their rental rates. Both of these factors create a wholly appealing situation for people who are looking to purchase and open their own holiday let.

What about mortgage lenders?

Holiday let mortgages have some of the lowest default and arrears rates of any mortgage type. The typical client profile is strong, the property is usually better quality than the average – overall, they are great, profitable mortgages for lenders.

This is good news for the holiday letting industry as lenders wish to continue to support the sector. What’s more, mortgage rates are likely to get even more competitive as the Bank of England base rate drops, marking a definite improvement for buyers compared with recent months.

To conclude

There’s been a lot of worrying news concerning the holiday letting industry and second home ownership in 2024. Thankfully, when taking the developments into account within a much wider context, it’s not all doom and gloom.

Holiday letting has never been about generating an outright month-by-month profit after mortgage interest, as is the objective with buy-to-let properties. Unlike investing in shares or bonds, investing in a holiday let property is a move that is far more exciting and in the majority of cases, is an enjoyable experience for the owner.

So, while we understand that the holiday let market is changing shape, we also believe that the future is a positive one. Those savvy investors who get their hands on their dream property now could well be set for the future.