Are Holiday Lets a Good Investment?

Investors and landlords are increasingly curious about holiday let properties as an alternative to traditional long-term buy-to-let investments. On the surface, holiday rentals can command high nightly rates and capitalise on tourism demand. A 2024 survey found a third of Brits opting for “staycations” and overseas visitors on holiday making 15.9 million trips to the UK (in 2023). [1] But do holiday lets deliver better returns? This article explores holiday lets as an investment, weighing their potential for higher income against the added costs, financing hurdles and new regulations that investors must navigate.

One of the biggest draws of holiday lets is the potential for higher rental income compared to standard buy-to-let properties. These short-term rentals allow landlords to charge nightly or weekly rates which can substantially exceed a typical month’s rent from a long-term buy-to-let tenant during peak seasons.

For example, a cottage in a tourist hotspot might generate as much in one high-season week as a conventional rental would in a month. According to industry research, holiday let landlords have been seen to achieve up to 30% higher annual yields than traditional landlords in comparable areas.[1] These higher returns are driven by premium nightly rates during holidays or festivals and the flexibility to adjust pricing for peak demand periods.

On the other hand, earnings from holiday lets can be unpredictable and seasonal. High occupancy and premium pricing are mostly attainable during school holidays, summer months or major local events. Off-season bookings may slow dramatically, meaning weeks with little to no income when tourism drops. This seasonality means that the average occupancy for holiday rentals might only be 20–24 weeks per year in less busy areas, though top performers in prime locations can exceed 40 weeks. Prospective holiday let investors should realistically forecast occupancy rates and have a financial cushion for off-peak months.

Another aspect of returns is capital growth. Holiday lets may not have an inherent advantage over buy-to-lets. A well-chosen holiday cottage in an area rising in popularity could see strong price growth, just as a flat in a regenerating city neighbourhood might.  

In short, holiday lets can deliver substantial returns when carefully selected and managed and in the right market conditions, but these are not guaranteed.

Operating Costs, Maintenance and Insurance Responsibilities

Higher gross income from holiday letting comes with higher operating costs and responsibilities. When you let a property short-term, you effectively become a combination of landlord and hospitality manager. Frequent guest turnover means you incur regular expenses that long-term landlords may not face, such as cleaning and laundry after each stay and restocking supplies. Frequent changeover costs can add up. If you do not live locally or prefer hands-off management, you will need to engage a local property manager to handle changeovers, key handovers and guest inquiries.  

Maintenance and wear-and-tear could also be higher in holiday lets. With many different guests using the property, furniture and appliances might suffer from heavier use, for example. You will probably need to budget for replacements from time to time to keep the accommodation attractive, as holidaymakers anticipate a well-furnished and up-to-date accommodation with all amenities in top working order. Features such as fast Wi-Fi, modern kitchen appliances, entertainment systems and luxuries such as a hot tub can make your listing even more competitive, but they also to costs. As the owner, you must inspect the property regulary to identify and resolve issues between guests. Overall, the extra upkeep and turnover make holiday lets more expensive to run than a typical buy-to-let. Owners must also cover some other costs that long-term tenants pay, such as utility bills, council tax, and internet and TV subscriptions.

Standard home insurance or landlord insurance policies won’t cover a property that’s let out to short-term guests, so you’ll need specialized holiday let insurance. These policies combine building insurance and contents cover with public liability insurance in case a guest is injured on your property, and sometimes loss of income cover if damage forces you to cancel bookings. Holiday let insurance is typically more expensive due to the higher risks, but it is essential for protecting your investment.  

Additionally, you are responsible for ensuring the property meets all safety regulations. This includes annual gas safety checks, up-to-date fire alarms and carbon monoxide detectors, proper appliance testing, and providing information such as fire escape routes. Many local authorities have specific requirements for holiday rentals, so staying compliant with these is essential.

Finally, factor in management fees if you outsource any duties. Letting agents or holiday cottage agencies can handle marketing, bookings and guest communications for you, but they often charge significantly higher commissions than long-term letting agents. It is not uncommon for a holiday let management service to take 20–30% of the rental income, whereas a typical buy-to-let property management fee might be around 10–15%.[2] While these agencies can boost your occupancy through their marketing reach and save you time, their cost must also be built into your business model.

In summary, prospective holiday let investors need to budget for operational costs, cleaning, utilities, maintenance, insurance and management, which will be higher than for a comparable long-term rental. Only by calculating your net income after these expenses can you judge the true profitability of a holiday let.

Holiday Let Mortgages: Criteria and Availability

Financing a holiday rental comes with its own challenges. Holiday let mortgages are a niche product offered by a more limited pool of lenders and with stricter criteria than standard buy-to-let loans. While buy-to-let mortgages primarily consider the long-term rental income potential and typically require a 20–25% deposit, holiday let lenders face more uncertainty with seasonal income, so lenders tend to demand larger deposits and evidence of personal financial stability. In practice, you might need at least a 25%–30% deposit to get a holiday let mortgage and some lenders even ask for 40% or more for this type of lending.[3] Lenders will often also require that the borrower has a minimum personal annual income (e.g. £20K–40K), aside from the rental income.[3] This is to ensure you can cover the mortgage during void periods, since there may be months with little rental income. In short, the affordability bar is higher: you must show that both the projected rental yield and your own finances can comfortably service the loan even in the off-season.

Many big banks do not offer holiday property mortgage products at all. Instead, this segment may usually be served by regional building societies and a few specialist lenders. [4] Lenders price holiday let loans higher to account for the risk of variable rental income, so your mortgage interest is likely to be a bit above a comparable buy-to-let deal.

Beyond deposit and income requirements, holiday let mortgage underwriting will probably also examine the property’s earning potential in more detail. Lenders might typically require a projection of the property’s expected rental income during peak and low seasons provided by a holiday letting agent and perhaps based on comparable properties in the area. They may insist that the projected rent at peak times is high enough to cover the mortgage payments by a certain stress factor or multiple.[3] Some lenders may also have rules such as limiting the number of weeks you, as the owner, can occupy the property yourself (since they want it earning income). Generally, you’ll also need to already own a residential home.  

Given the potential hurdles, consider consulting a mortgage broker who understands the holiday let sector, as they can potentially help identify which lenders are most likely to lend against your target property and guide you as to how to meet their lending criteria.

Regulations and Tax Changes Impacting Holiday Lets

When assessing whether a holiday let is a good investment, one must also consider the evolving regulatory and tax environment. Short-term rentals have come under increasing scrutiny by government and local authorities in recent years, which has led to new rules that can affect your income and legal obligations. On the local regulation front, several hotspots have introduced measures to control the proliferation of holiday rentals. For example, London’s “90-day rule” restricts letting out an entire home on a short-term basis for more than 90 nights a year without planning permission, a rule meant to protect long-term housing supply.[5] Other council areas, such as parts of Edinburgh and other tourist-heavy cities, have implemented or are considering caps on short-let days, as well as requiring owners to obtain a planning change-of-use or license to operate a short-term let.  

In Scotland, a nationwide licensing scheme for short-term let properties requires hosts to meet certain minimum safety standards and register with the local authority. Wales has allowed councils to levy premium council tax rates on second homes and raised the minimum days a property must be let (182 days occupied in a year) to qualify as a business and avoid the extra local taxes. Such regulations can impact the viability of a holiday let: an annual cap on rental days, for instance, directly limits your revenue, while licensing adds fees and paperwork and non-compliance can result in fines or being barred from renting.

The tax landscape for holiday lets has also shifted dramatically, especially with the tax reforms that have taken effect since April 2025. Historically, furnished holiday lets enjoyed several tax advantages, being treated more like businesses than investment properties. Holiday let owners could deduct full mortgage interest against rental income (unlike regular landlords who since 2020 can only claim a basic-rate credit), claim capital allowances on furnishings and equipment, and benefit from business relief on capital gains tax (CGT) when selling (including potentially paying a lower 10% CGT rate on sale profits under Business Asset Disposal Relief).[6]

However, the special Furnished Holiday Lettings (FHL) tax regime has been abolished effective from April 2025, aligning holiday lets with the tax rules on other residential rentals, including ending full mortgage interest relief, scrapping capital allowances on items such as furniture, withdrawing business CGT reliefs and no longer treating holiday let earnings as “trading” income for pension contribution purposes.[6]

Conclusion

So, are holiday lets still a good investment? The answer depends on your financial goals, risk tolerance and willingness to manage the property. Holiday lets can indeed generate higher rental income than traditional buy-to-lets, especially in tourism hotbeds where nightly rates are strong and occupancy is high. They also offer personal utility, as you have the option to use the property yourself for vacations, something you cannot do with a standard rental. Furthermore, despite recent challenges, demand for unique short-term accommodation remains strong and well-reviewed holiday homes in prime locations can build a profitable clientele.

That said, you take on what is effectively a hospitality business, with all the operational costs and effort that this entails. The tax changes from April 2025 will also squeeze profit margins and returns. Meanwhile, increasing local regulations could constrain how you operate (for example, limiting rental days). Prospective investors should perform thorough due diligence: research the location’s year-round demand, calculate all expenses, and consider consulting a tax advisor and mortgage broker to understand the full picture.

FAQs

Q. Are holiday lets more profitable than traditional buy-to-lets?

A. Holiday lets can generate higher gross rental income, especially during peak seasons, compared to tradition long-term rentals. In tourist hotspots, a single high-season week can match or exceed a month’s rent from a traditional tenant. However, profits can vary due to seasonal demand and higher running costs and recent tax changes.

Q. How often can I expect bookings throughout the year?

A. Occupancy rates for holiday lets range widely. In less popular tourist areas, owners might achieve 20–24 weeks of bookings per year, while prime destinations can exceed 40+ weeks. Booking patterns are also heavily influenced by school holidays, local events and weather.

Q. What are the biggest costs involved in running a holiday let?

A. Expect higher running costs than with standard rentals. These include cleaning and linen services after each guest, utility bills, council taxes, more amenities and property maintenance, insurance, and potentially management fees, which can be 20–30% of rental income if using a full-service agency.

Q. Can I get a mortgage for a holiday let?

A. Yes, but holiday let mortgages can come with stricter criteria. You will probably need a larger deposit (25–40%), proof of personal income and rental yield projections. Only certain lenders offer them, so a mortgage broker familiar with holiday lets can help navigate options.

Q. How will the 2025 tax changes affect holiday lets?

A. The Furnished Holiday Let (FHL) tax regime ended in April 2025. This means losing tax benefits such as full mortgage interest deduction, capital allowances and reduced CGT rates. Many investors will face higher tax bills, reducing returns.