Majority of holiday let owners influenced by council tax premiums

The majority of holiday let owners are being influenced by council tax premiums, according to new research from Cumberland Building Society.

The Cumberland’s inaugural Holiday Let Index found that 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 removal of full mortgage-interest relief was also 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%.

Further changes to the way holiday lets are regulated could also have a significant influence on owners’ decisions.

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, 55% said they would be very or somewhat likely to sell their property.

However, the Cumberland’s 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.

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

“Location could become an even greater consideration,” said Grant Seaton, head of intermediary lending at Cumberland Building Society (pictured above).

“Properties with similar purchase prices and rental potential could face different costs or restrictions depending on the local authority they sit within, so understanding the local position is becoming a much bigger part of assessing whether an investment stacks up over the longer term.

“That makes the broker’s role broader than establishing whether a mortgage is affordable at the point of application.

“Understanding how the borrower might respond if their costs rose or local rules changed can be just as useful, because those pressures can affect the long-term viability of the property even when the initial numbers look sound.”

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.