Nearly three-quarters (72%) of holiday let owners say council tax premiums on second homes and holiday lets had a major or moderate influence on their decision to participate in the market, Cumberland Building Society holiday let index reveals.

The data included 31% who described the influence as major and 41% as moderate.

Research reveals that the removal of full mortgage-interest relief was 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%.

The research also comes against the backdrop of further tax changes announced in the government’s Autumn Budget.

From April 2027, income tax rates on property income will increase by a further two percentage points, taking the basic rate to 24%, the higher rate to 44% and the additional rate to 49% in England, Wales and Northern Ireland.

Among 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 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.

Some 15% said they would need to adjust their approach through pricing or cost reductions, while 7% said they would be likely to convert their property to a long-term rental and 3% would be likely to sell. Just 6% said a one-percentage-point increase would have no impact on their ability to continue operating.

While the research shows that regulation and rising costs are influencing decisions across the sector, it also suggests that most owners are already preparing for the next stage of regulation.

Some 84% said they were prepared for the National Registration Scheme, compared with 16% who said they were not.

The findings show a holiday let market adapting to a changing tax, policy and borrowing environment, with owners having to consider the effect of these changes on the long-term viability of their properties.

Cumberland Building Society head of intermediary lending Grant Seaton says: “What these findings show is that the decision to invest in a holiday let is being influenced by far more than the property itself.”

“Owners have already had to contend with considerable changes to the tax treatment of holiday lets, and the latest Budget announcement means those whose profits are subject to property income tax could face another increase in their tax bills from April 2027.”

Seaton says location could become an even greater consideration because of the contribution holiday let businesses make to local economies.

He adds: “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.”