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The great rebalancing: why 2025 marks a turning point for short-term lets

For much of the past decade, operating a Furnished Holiday Let (FHL) was, on paper, one of the most tax-efficient ways to own residential property in the UK. Landlords could deduct mortgage interest in full, claim capital allowances on furnishings and equipment, benefit from Entrepreneurs' Relief on sale, and even offset FHL profits against pension contributions — advantages entirely unavailable to ordinary buy-to-let investors.

That era is now over.

From April 2025, HMRC abolished the FHL tax regime entirely, bringing short-term let income into line with standard property income for tax purposes. Mortgage interest relief is now capped at the basic rate — mirroring the Section 24 restrictions that reshaped buy-to-let from 2017 onwards. Capital Gains Tax on residential property rose to 24% from October 2024. And with the SDLT surcharge on additional dwellings lifted from 3% to 5% in the same month, the economics of buying a new short-term let have fundamentally changed.

The result is a structural reconsideration playing out across coastal villages, market towns and university cities — and the data is beginning to show it.

The FHL map: where the pressure is greatest

The UK's short-term let stock is heavily concentrated in a handful of regions. Cornwall, the Lake District, the Cotswolds, Pembrokeshire, the North Wales coast and the Scottish Highlands collectively account for a disproportionate share of Airbnb and short-let listings. In many parishes within these areas, short-term lets have historically made up 20–30% of the private housing stock — crowding out long-term rental supply and fuelling local affordability crises.

REalyse rental market data across these hotspot districts over the past 12 months tells a nuanced story. In Cumbrian districts proximate to the Lake District, average gross rental yields are running at between 7.2% and 9.5% for long-term lets — among the highest recorded across all the tourist areas we track. In parts of the Cotswolds (GL postcode districts), yields range from approximately 6.6% to 8.5%, with average monthly asking rents between £1,200 and £2,270. Across coastal Wales (SA and LL districts), yields cluster around 6.6% to 7.5%, with average asking rents between approximately £735 and £1,000 per month.

These are not marginal returns. For a landlord who previously ran a holiday cottage and is now weighing up whether to sell or convert, a gross yield consistently above 7% — with none of the void management, platform fees or seasonal volatility of short-term letting — represents a meaningful alternative. The tax case for FHLs has been dismantled; the income case for long-term renting is quietly strengthening.

In Cornwall specifically, REalyse data shows average monthly asking rents in the TR14 district (Camborne) running at approximately £1,040, with gross yields around 6.6%. While lower than Lake District comparables, this still outperforms many urban PRS markets on a yield basis — and comes without the overhead complexity of short-term platform management.

Rents and supply: a double-edged shift

The entry of former FHL stock into the long-term rental market has two competing effects, and the balance between them will determine whether affected communities ultimately benefit.

On the supply side, there is genuine cause for optimism. Many coastal and rural towns have seen chronic rental shortages over recent years — a pattern consistently visible in REalyse listing data, which has tracked thin supply and high days-on-market figures in peak tourist postcode districts. Any meaningful conversion of FHL stock to long-term lets adds inventory to markets that have been structurally undersupplied. For essential workers, young families and lower-income renters priced out of home ownership in these areas, additional long-term rental homes are a direct quality-of-life improvement.

On the demand and pricing side, the picture is more complicated. Properties converting from FHL use tend to be larger, more characterful and higher-specified than typical PRS stock — think three-bedroom cottages with inglenook fireplaces, not two-bedroom new-build flats. These homes enter the rental market at rents that reflect both their quality and the landlord's revised tax position. Across the tourist hotspot districts in our dataset, the average monthly asking rent sits at approximately £1,080, with a range running from £475 to over £2,500. A former holiday cottage with a £1,500 monthly asking rent may ease aggregate supply figures while remaining unaffordable to the very renters most in need.

The concentration effects matter too. Scotland introduced a mandatory short-term let licensing scheme in October 2023, with tighter controls on secondary letting in designated control zones — including much of Edinburgh. Early data from the Scottish licensing regime suggests a meaningful reduction in active short-term let listings in the capital, with some displacement into the long-term PRS. Wales has introduced its own registration requirements. England remains at an earlier regulatory stage, with the government's STL registration scheme still developing, meaning the pace of conversion in English tourist markets may be slower and more driven by individual tax calculations than by top-down policy.

University towns: a parallel story

The FHL effect is less obvious in university towns, but a related dynamic is playing out. Properties in student areas — particularly those near campus in cities like Manchester, Sheffield, Bristol, Exeter, and Leeds — have attracted growing interest from investors who previously favoured the short-let premium on platforms like Airbnb. The professionalisation of the student PRS, combined with high and reliable occupancy rates, makes these assets a natural destination for capital reconfigured by the FHL changes.

REalyse data for the Manchester postcode districts closest to the University of Manchester and Manchester Metropolitan University shows some of the strongest rental yields in the university towns we track. M14 (Fallowfield) records an average gross yield of approximately 7.7% on average asking rents of £1,740 per month, while M13 (Longsight/Oxford Road corridor) and M15 (Castlefield/universities) yield around 7.5% and 7.4% respectively. These are yield profiles that comfortably absorb the increased tax burden that FHL landlords now face, making Manchester's student quarter a logical landing spot for repositioned capital.

The dynamic also works in the other direction: purpose-built student accommodation (PBSA) schemes and build-to-rent developments in these locations are effectively competing for the same tenants as former short-let operators. Where institutional capital is meeting repositioned FHL stock in the same postcode, the competitive pressure on yields — and ultimately rents — is worth monitoring closely.

Outlook: structural shift, not a silver bullet

The abolition of FHL tax relief is the most significant structural change to the short-let market since the platform economy created it. Its effects will compound with higher SDLT costs, higher CGT rates, and evolving licensing requirements in Scotland and Wales to create sustained pressure on operators to make a binary choice: sell or convert.

REalyse data across 358 postcode districts in tourist and coastal markets shows an average gross rental yield of approximately 5.5% across all tracked hotspot areas — but the top-performing districts are comfortably above 8%, demonstrating that in the right location, a long-term let is now the economically rational choice for a former FHL landlord.

The critical question for policymakers and housing professionals is whether the freed-up stock reaches the renters who need it most, or simply migrates up the quality and rent spectrum. Evidence from Scotland's STL controls and anecdotal patterns in Cornwall and the Lake District suggest the answer is mixed. Supply is growing, but affordability gaps remain wide.

For investors, the data points to a window of opportunity in well-located tourist markets and university towns where yield compression has been modest and demand is structural. For tenants in these areas, the shift may gradually ease the availability drought — though rental costs are unlikely to fall significantly in the near term.

What the data makes clear is that the FHL regime's abolition is not a one-off event. It is the beginning of a multi-year rebalancing between the short-term let economy and the private rented sector — and the full effects will only be visible over the coming rental cycles.