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7 reasons landlords are switching to holiday lets

  • 4 min read
  • 8 Jul 2020
7 reasons landlords are switching to holiday lets

There are almost 5.5 million buy-to-let properties in the UK. But this number is at risk from the rising popularity of short-term and holiday lets. Some news outlets warn that we could see a rental property crisis as a result. 

So, why is this happening?

Research carried out by ARLA Propertymark on UK landlords found that landlords of 230,000 properties in the UK (4% of the whole residential rental market) were “very likely” to switch to short-term lets. Those accounting for a further 470,000 properties (almost 9%) said that they were “fairly likely” to switch. 

We’ve put together 7 big reasons why this might be the case:

1. Reduced tax relief on mortgage interest

Once upon a time, buy-to-let properties were not only a big money maker but they afforded UK landlords tax reliefs that made their property businesses exceedingly lucrative. But in 2017, it started to change. Borrowing money through mortgages was no longer as advantageous. Before, you could deduct your mortgage interest payments from your tax bill. This meant that you were only taxed on your profits (i.e. what you earned in rent minus what you paid for the mortgage).

In 2017, this allowance was gradually reduced until in 2020, you were no longer able to offset your mortgage interest at all. You’re now taxed on all of your rental income and get a 20% tax credit (the Basic Rate). This affects High Earners (anyone over £50,000) significantly.  

To calculate the tax you should pay on your rental income, check out our Rental Income Calculator

2. The tenant fee ban

From June 2019, landlords and lettings agents were no longer able to charge tenants for “the grant, continuance, assignment, termination or renewal of an assured shorthold tenancy or licence agreement”. This was welcomed by renters, making it more affordable to live. 

It also prevents agents from charging disproportionately high fees for services like printing out contracts or renewing agreements. 

But for landlords, this meant that they also weren’t able to charge tenants for third party costs such as:

  • A guarantor form
  • Carrying out credit checks
  • Referencing charges
  • Admin charges

As a result, the cost once again had to come from the landlord’s pocket. 

3. The staycation

Following Brexit (and more recently, the global pandemic) travelling abroad for weekend breaks for many of us has been sidelined. Instead, we’re opting for the staycation. More and more, Brits are staying UK-bound for their short trips, exploring the delights of British beaches, countryside and cities. 

With the increased tax implications of buy-to-let properties, it’s not surprising that landlords are considering this trend a fresh opportunity. 

4. Airbnb

And that leads nicely onto the next point. Airbnb! The popularity of the platform as an easy (well, relatively) money-making tool has not gone unnoticed. 

And whilst landlords are having to pay more to keep the fires of their buy-to-let businesses burning, the pull of Airbnb gets ever stronger. In fact, one in 10 UK landlords say that they might make the switch, especially those with more than five properties.

5. The global pandemic 

We couldn’t make this list without mentioning the elephant in every room. The COVID-19 pandemic. Whilst the ramifications have hit the sharing economy (e.g. Airbnb) especially hard, the prevalence of staycations are even easier to get involved in. And this will only increase if tourism abroad continues to be restricted. 

That said, Airbnb hosts have ironically faced the opposite issue to landlords. Many are turning to the live-in-landlord short-term let to supplement their income after four months of lockdown. 

Read more about this here.

6. The proposed abolition of Section 21

In December 2019, the government announced a potential end to unfair evictions of tenants. Landlords may no longer be able to evict their tenants at short notice, and without good reason.  They are also known as “no-fault evictions”

Whilst this is an undoubtedly positive step for renters’ security, it’s not necessarily for landlords. For those that handle long-term lets, they could end up left with bad tenants who damage the property or often don’t pay their rent on time. And this is a position that many landlords don’t want to risk facing. 

7. It’s more lucrative

Finally, the obvious one. In many scenarios, renting your home via Airbnb or for general holiday rental brings in more money than lettings can. What with the tax implications that we’ve already mentioned for landlords, without a consistent stream of tenants and an area where you can charge high costs, the money just doesn’t match up with the staycation income.

But renting your property for holiday stays is not without its tax obligations. We wrote a guide to help with what you should consider when putting your property on Airbnb. Take a look here.

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