The Short-Term Squeeze: Are UK Regulations Cutting Out Your Business Model?

For many property investors, the allure of short-term lets, often marketed as holiday homes or serviced accommodation, has been undeniable.

The promise of higher yields compared to traditional long-term tenancies, coupled with greater flexibility, has drawn countless landlords into this burgeoning sector.

However, as we navigate 2025, a growing shadow looms over this business model: the increasing fear that new, stringent regulations are poised to cut out, or at least severely curtail, the profitability and viability of short-term letting in the UK.

It's a conversation that's sending ripples of concern through the landlord community.

Are the golden days of unfettered short-term letting coming to an end?

And what does this mean for those who've built their portfolios, and indeed their livelihoods, around this model?

The Tides Are Turning: Why the Scrutiny?

The exponential growth of platforms like Airbnb and Booking.com has undoubtedly brought economic benefits to local areas, boosting tourism and providing flexible accommodation options.

However, this growth hasn't been without its downsides, and these are precisely the issues the government and local authorities are now attempting to address:

• Housing Shortages and Affordability: In popular tourist hotspots and major cities, the proliferation of short-term lets has been blamed for reducing the supply of long-term rental properties, pushing up rents, and making it increasingly difficult for local residents to find affordable homes. Communities are being "hollowed out" as residential areas transform into transient holiday zones.

• Community Disruption: Concerns about noise, waste management, and the overall change in the character of residential neighbourhoods due to a high concentration of short-term lets have become vocal. Local councils are under pressure to respond to resident complaints.

• Lack of Oversight and Safety Concerns: Unlike hotels and traditional B&Bs, the short-term let sector has historically been less regulated, leading to concerns about inconsistent safety standards, lack of accountability, and difficulties in monitoring compliance.

• Uneven Playing Field: Traditional hospitality businesses argue that short-term lets operate with an unfair advantage, avoiding the same stringent regulations and taxes that they are subject to.

The Regulatory Onslaught in 2025: What's Changed?

The rhetoric has shifted, and 2025 is proving to be a pivotal year for short-term let regulations across the UK.

We're seeing a multi-pronged approach from both central government and local authorities:

1. The Mandatory National Registration Scheme (England): This is perhaps the biggest game-changer. From 2025, all short-term let properties in England must be registered with a central government database. This isn't just a tick-box exercise; it's designed to give local authorities crucial data on the number and location of short-term lets in their areas. This information will be vital for enforcement and for councils to understand the impact on their communities. Expect more stringent record-keeping and a greater emphasis on demonstrating compliance with safety standards.

2. New Planning 'Use Class' and Permitted Development Rights (England): The government has introduced a new planning 'use class' for short-term lets (Class C5) to distinguish them from standard residential dwellings. While existing dedicated short-term lets will likely be reclassified automatically, any new conversions from residential (C3) to short-term (C5) will, in principle, require planning permission. Crucially, local authorities will have the power to introduce "Article 4 Directions" to remove these permitted development rights, meaning that in specific areas, any change to a short-term let will require a full planning application. This grants local councils significant control over the proliferation of short-term lets in their areas.

3. Abolition of Furnished Holiday Let (FHL) Tax Regime: From April 2025, the favourable tax treatment for Furnished Holiday Lets has been abolished. This is a massive blow for many short-term let owners who previously benefited from being able to offset mortgage interest against rental income, claim capital allowances on furniture and fittings, and potentially qualify for Business Asset Disposal Relief. Holiday lets are now taxed in the same way as any other residential property, significantly impacting profitability for many.

4. Heightened Safety Standards: The focus on guest safety is paramount. The "Short-Term Rental Safety Act 2024," implemented from January 2025, specifically addresses fire safety. This includes mandatory annual professional fire risk assessments for properties accommodating more than six guests, stricter requirements for smoke and heat detection systems, carbon monoxide detectors, and fire extinguishers. Non-compliance can lead to severe penalties and insurance policy issues.

5. Local Authority Specific Powers (Beyond England): Scotland has already implemented a mandatory licensing scheme for all short-term lets, and Wales is planning a similar registration scheme. Councils across the UK are also independently exploring or implementing local measures, such as tourist taxes or stricter enforcement of existing planning rules.

The Business Model Under Threat: What Does This Mean for You?

The cumulative effect of these regulations is creating a perfect storm for many short-term let operators:

• Increased Costs: Registration fees, potential planning application costs, enhanced safety compliance, and the removal of FHL tax benefits all contribute to a significant rise in operating expenses.

• Reduced Profitability: The higher costs, coupled with the loss of tax advantages, will inevitably squeeze profit margins, making the short-term let model less attractive for some.

• Greater Administrative Burden: The need for mandatory registration, meticulous record-keeping, and proactive compliance with ever-evolving rules adds a substantial administrative load.

• Uncertainty and Risk: The ability of local authorities to introduce Article 4 Directions creates uncertainty. What might be a viable short-term let today could require planning permission tomorrow, or even face outright restrictions, if your area becomes a target for stricter controls.

• Shift to Long-Term Lettings? For some, the increased hurdles in the short-term market may force a pivot back to traditional long-term tenancies, despite the challenges that sector also faces (e.g., Renters' Reform Bill).

Navigating the New Landscape

So, what's a short-term let landlord to do in the face of these changes?

• Stay Informed: Ignorance is no defence. Regularly check government guidance, subscribe to industry newsletters, and keep abreast of local authority announcements concerning short-term lets in your area.

• Review Your Business Model: Conduct a thorough financial analysis. With the FHL changes, is your short-term let still as profitable? Are the increased compliance costs sustainable?

• Prioritise Compliance: This is non-negotiable. Ensure all safety certificates are up-to-date, your property meets the new fire safety standards, and you are fully registered. Non-compliance will lead to fines and potentially even listing removal from platforms.

• Consider Professional Management: For those keen to remain in the short-term let market, a reputable short-term let management company can be invaluable. They will handle the compliance, marketing, and day-to-day operations, freeing you from the administrative burden and ensuring you meet all legal requirements.

• Explore Alternatives: If the numbers no longer stack up, consider transitioning back to long-term lets, exploring build-to-rent opportunities, or even looking at commercial property.

The UK government's clear intent is to bring the short-term let sector under greater control, balancing tourism benefits with the needs of local communities and housing markets.

While this undoubtedly poses challenges for existing operators, it also presents an opportunity for a more professional, compliant, and sustainable industry to emerge.

The key for landlords in 2025 is to acknowledge these shifts, adapt swiftly, and make informed decisions about the future of their property investments.

The landscape has changed, and those who evolve with it will be the ones who ultimately thrive.

That’s it for today, have a good weekend

ps if you’re looking for some R2R deals yourself in London and surrounding areas, or if you may know someone that is, reply to this email and someone from our team will be happy to assist you in your query