Buy to let has, for a long time, been considered a great way for people to buy a home, with little risk of falling behind on their mortgage because tenants are covering mortgage payments. It can even be a bit of a money spinner, if they manage to make profit on the rent.

However, thanks to fluctuating house prices, the lowering of mortgage interest relief, the second-home stamp-duty surcharge and the recent cut to capital gains tax, long term lets are rapidly falling out of favour with buyers.

There has recently been a surge in interest in holiday lets, thanks to sites like Airbnb, which could persuade homeowners to think about this as an option.

UK holiday lets currently see a net yield of 6.1% on average, compared with just 5% for buy to let properties. Meanwhile, the weekly income for a holiday let is around three times as much as that of a long term letting, even taking into account downtime out of peak seasons. This makes this a very attractive proposition for home buyers who can’t see how a long term rental will benefit them financially.

However, there are factors to consider before deciding that a holiday rental is the right option for property buyers. A property must conform to certain criteria in order to qualify as a holiday let. It must be fully furnished and available for letting at least 210 days per year, and let for at least 105. Owners can’t count any time that they stay there themselves and will need to consistently advertise in order for the property to count as a commercial let.

Before a buyer decides which type of let is right for them, it is important to think about the benefits of both.

Long term rental benefits

  • Once let, the property has a set and steady income flow, that only changes at the end of the tenancy if the occupant decides to move out
  • The tenants keep the property maintained and there is very little work for the owner to do
  • The right tenants can make life easier for the homeowner by adding to the property and informing them if there is an issue that needs fixing
  • The rent stays the same so that there aren’t variations depending on the time of year
  • Less upfront costs as most rental properties can be let unfurnished
  • Landlords can offset expenses using their rental income.

Holiday let benefits

  • Guests pay upfront so there is no chance of rent being missed
  • Potentially very lucrative if the property is popular
  • The owner can use the property themselves when they want a holiday
  • Landlords can check up on the property between guests and do any maintenance work
  • Safety regulations are less involved
  • 100% capital allowances on the first £250,000 earned
  • Chance of capital gains tax relief when the property is sold
  • Not subject the tax break reduction that long term lets are

Buying holiday lets v long term lets

With any buy to let property, it is important to think about how it is going to be paid for. Many lenders are less comfortable dealing with holiday lets as any calculations the buyer makes are based on an income projection rather than financial facts. Long term lets are easier to get financing for, for this reason, as once the property is let them the income is steady.

Clients should always speak to a mortgage advisor and an estate agent before they make any firm decisions on the type of let that they want, to get help deciding what is best for them.

Can long term lets be converted to holiday lets?

For homeowners who already have a long term let property and are interested in switching to a holiday let, there is more to think about than how to market it and set it up so that it is suitable for holidaymakers. There are financial considerations that will be important to understand such as:

Does the mortgage support it?

Buy to let mortgage agreements are usually offered on the basis that the property will be rented out via an Assured Shorthold Tenancy. If the homeowner switches to a holiday let without letting their mortgage provider know, they may not only be in breach of their mortgage agreement, but might be liable for a fee, higher interest rates, having to pay back the mortgage in full or even repossession.

Speaking to their mortgage lender is the best way to find out if they can rent out their property as a holiday let and, if not, they might have to think about re-mortgaging using a lender that does support holiday lets. It is important to keep in mind that there are far fewer mortgage products available for this type of letting, and interest rates are often higher, so this should be taken into account before considering switching to a holiday let.

Will their insurance support it?

Another consideration is the property insurance that they currently have on the home. Switching to a new type of let where the tenancy changes frequently could breach the terms of the buildings and contents insurance meaning that if there are any damages the homeowner will not be able to claim on their insurance. In many cases, brand new home insurance will need to be purchased and, again, may be more expensive.

Do they need a multiple occupation licence?

Renting in the short term to more than five people at once can result in the property requiring a House in Multiple Occupation licence. Not having one when it is required could potentially lead to prosecution and the imposition of hefty fines. This can be trickier with holiday homes than it is with long term let properties as people tend to ‘club together’ to go on holiday and share the space with more than they would under a long term let. A two bedroom house can easily fit five people if there are two couples and one on the sofa, so unless the landlord is willing to be very strict about the number of people allowed to stay, and visit regularly to enforce it, is makes sense to look into and apply for a licence.

Talk to TFMC

All of these additions mean that setting up a holiday home can mean a much higher financial outlay in the beginning, although it can also be more lucrative in the long run. For this reason it is important that those in the property market know all of the facts before they decide which type of investment they wish to make.

TFMC can advise on long term investment strategies for your business so why not speak to TFMC’s helpful team today. Call us on 0800 470 4820 or email

Stuart Masters - Director at TFMC
Stuart Masters

Stuart has spent almost 20 years in accounting with a significant amount of time focused on Outsourcing and the provision of bookkeeping and financial management information for businesses.

Specialties: Bookkeeping, Management Accounts, Accounts Outsourcing, Business Development, Business Planning, Year End Accounts.