Landlords, especially those running Airbnb and other short-let properties, are facing a double whammy: new tax rules and falling occupancy rates could leave them with less money in their pockets.

Tax Trouble on the Horizon

The government has axed tax breaks for Furnished Holiday Lettings (FHL) properties, meaning landlords will have to pay more tax on their rental income. These changes, effective from April 2025, mean:

• No more mortgage interest deduction: Landlords won’t be able to deduct the full cost of mortgage interest from their rental income.
• Same rules as regular rentals: FHL properties will be subject to the same tax rules as long-term lets.

Experts warn that landlords need to seek professional tax advice to understand the new rules and how they will affect their finances.

Empty Properties, Falling Profits

While the number of short-let properties is rising, occupancy rates are falling across the country. This means landlords are earning less from their properties.

Here are the key facts:

• Over half a million short-let properties in the UK: The number of active short-let listings has increased in most areas, with London leading the way with over 52,000 listings.
• Falling occupancy rates: Across all 10 areas studied, occupancy rates have declined in the past year, with Devon, Dorset, and the Cotswolds seeing the biggest drops.
• Sluggish revenues: Annual revenues have also dropped in some areas, like Devon, Cornwall, London, and Manchester, while others have seen flat growth.
• Higher prices to compensate: To offset falling occupancy and revenue, landlords are raising prices. The average daily rate has increased in all 10 areas, with Edinburgh, the Lake District, Somerset, and the Peak District seeing the largest jumps.

A Warning Sign for Landlords

This decline in occupancy and revenue suggests that the short-let market is becoming less attractive for investors. Landlords need to be aware of the changing market and consider the potential risks before investing in short-let properties.

Marc von Grundherr, director of Benham and Reeves, warns that landlords should be cautious about relying on short-let properties as a reliable source of income.

It’s time for landlords to re-evaluate their strategy and consider the potential risks and rewards of short-let properties in this new landscape.