Almost nine in 10 mortgage brokers are reporting increased demand for holiday and short-let finance, despite investors facing a less favourable tax and regulatory environment.
The data, which comes from The Cumberland Building Society’s inaugural Holiday Let Index, found that the higher yields it generates compared with conventional buy-to-let are one of the main drivers of investor interest in the sector.
More than 86% of holiday let owners surveyed are achieving gross yields above 5%, with more than a third reporting yields of between 7% and 8%.
And these levels of return are resulting in further investment, with 30% of existing owners intending to purchase another short or holiday let within the next 12 months and just 3% looking to leave the market.
Investor expectations for future returns remain positive too, with 61% positive about future yields and 57% about prospects for capital growth.
Mortgage options
The growth in the sector is being supported by an increasingly well-established specialist mortgage market.
The Holiday Let Index recorded 3,471 holiday let mortgage searches in March 2026, with 3,553 mortgage products available by May.
There is also growing demand for financing that better suits the way short-term lets operate. The research found investors are looking for mortgages that take short-term rental performance into account when assessing income, as well as greater flexibility to switch properties between holiday and longer-term letting.
Tax and regulation remain significant headwinds
The strength of demand comes despite a considerably less favourable tax and regulatory environment.
The Furnished Holiday Let tax regime was abolished in April 2025, bringing holiday lets broadly into line with standard residential rentals for tax purposes. This has restricted mortgage interest relief and removed previous Capital Gains Tax and capital allowance benefits.
Councils in England can also charge council tax premiums of up to 100% on second homes, although holiday lets available for at least 140 nights and actually let for 70 nights a year can qualify for often far cheaper business rates instead.
There is, though, further regulation planned, including a mandatory registration scheme and a proposed C5 planning use class that could give councils greater control over new short-term lets.
And the prospect of those planning restrictions is a significant concern. Some 56% of investors surveyed said the introduction of the proposed C5 use class would make them consider selling.
Owners adapting
However, there is also evidence that many owners are already adapting to the changing environment. Some 47% have responded by increasing their nightly rates, 46% have sought to increase occupancy, and almost half said their holiday lets had become more profitable since the tax changes, compared with 30% who reported a decline.
However, the changing landscape is having an impact on how investors approach the sector.
The Cumberland says: “Investors are being more selective. Location, income potential, management quality and borrowing structure are likely to play a greater role in future decisions.”
