Rates Are Stabilising – Holiday Let Tax Rules Have Just Been Rewritten
Two things are happening in the UK property market at once right now, and together they change the calculation for a lot of expats and foreign nationals deciding what to buy and how to structure it.
Mortgage rates have settled into a higher, steadier range after a volatile start to the year. And a major tax change to holiday let ownership – one that has been on the horizon for a while – is only now starting to land on owners’ actual tax bills. If you are weighing up a UK residential purchase against a holiday let investment, both of these matter to the decision.
Where Residential Rates Actually Sit Right Now
The Bank of England held its base rate at 3.75% at the end of July, and the next decision is not due until mid-September. Average fixed rates across the market currently sit in the region of 5% to 5.6% for two and five year deals, depending on lender and loan-to-value. Stronger deposits still command noticeably better pricing – the best rates at 60% loan-to-value are running closer to 4.4% to 4.5%.
For context, average rates were closer to 4% at the start of the year before climbing sharply through the spring on the back of wider market volatility. They have held broadly steady since May. Most forecasts do not expect a return to sub-4% rates before 2027 at the earliest, though the picture can shift with each Bank of England meeting.
One thing worth knowing: even without a base rate cut, lenders continue to trim pricing at the margins as they compete for business. Rate movement does not only happen around Bank of England decisions – it happens quietly, most weeks, as individual lenders adjust their own books. For a closer look at where current UK mortgage rates sit, that page is updated as pricing moves.
The Bigger Story: What Changed for Holiday Lets
If residential rates are a story of gradual stabilisation, the holiday let market has just been through something far more disruptive.
The Furnished Holiday Lettings tax regime – which gave holiday let owners a set of tax advantages that made short-term rental property genuinely attractive compared with standard buy-to-let – was abolished from April 2025. For anyone who bought a UK holiday let expecting the old rules to still apply, the effects are only now landing properly, because the first tax return filed entirely under the new regime is not due until January 2027.
Mortgage interest treatment is the change with the biggest impact on anyone financing a holiday let personally. Holiday let owners used to deduct their full mortgage interest from rental profits before working out what they owed. Not any more. A 20% tax credit on the interest is all that is left – exactly the restricted treatment standard buy-to-let landlords have lived with since 2020.
The size of the effect depends on income and interest cost together, and it adds up fast. Take a holiday let generating £30,000 a year in rental income, with £12,000 a year in mortgage interest, owned by a higher-rate taxpayer. Under the old rules, that owner deducted the interest before tax, leaving a taxable profit of £18,000 and a tax bill of £7,200. Under the new rules, the interest is not deducted from profit at all – the full £30,000 is taxable, with only a 20% credit applied against the interest cost afterwards. The tax bill comes to £9,600 – over £2,400 more each year, on exactly the same income and the same mortgage.
Getting the numbers and paperwork right from the outset makes the difference between a smooth application and a stalled one.
Capital allowances on furniture and fixtures have also gone, along with the more favourable capital gains treatment holiday lets used to qualify for on sale. Regulation has tightened alongside the tax changes too. 2026 introduced a mandatory registration scheme for short-term lets in England, plus a separate planning use class that now distinguishes holiday lets from standard residential property.
What This Means If You Are Choosing Between the Two
None of this means holiday lets have stopped making sense as an investment – strong locations can still produce yields that outperform standard buy-to-let, particularly in peak season. The calculation has changed, though. Ownership structure is now central to it in a way it simply was not before.
A growing number of owners are responding by switching to limited company ownership. Companies deduct mortgage interest in the usual way, with none of the 20% credit restriction personal owners now face. It is not a decision to make lightly – not every lender will touch a limited company or SPV purchase, and even fewer will do it for an expat or foreign national applicant. Sort the structure out before you apply. Getting it wrong costs far more now than it would have before April 2025.
For expats weighing a straightforward residential purchase instead – whether that is a future home, a property for family, or simply a foothold in the UK market – none of the holiday let changes apply at all. A residential mortgage is assessed on your income and the property itself, not on rental yield or letting structure, which for many expats makes it the simpler route by some distance.
We are seeing this decision come up often from expats in Australia specifically, where interest in UK property – both residential and investment – has been building steadily. Wherever you are based, the right structure depends on what you actually want from the property, not just the headline numbers.
Getting the Structure Right From the Start
Structuring a UK residential or holiday let purchase correctly starts with the right advice, wherever you are based.
Whether you are buying residential, buy-to-let, or a holiday let, the lending side of the decision needs to be worked out before you commit to a structure, not after. A limited company holiday let purchase needs a different lender to a personal one. A standard buy-to-let mortgage is assessed differently again to a holiday let. And every one of these decisions gets harder to unwind once you are partway through a purchase.
As a whole-of-market broker working exclusively with expats and foreign nationals, we assess your full picture – your income, your country of residence, and what you actually want from the property – before recommending a route or a lender. That conversation is free, and it happens before anything is submitted anywhere.
Frequently Asked Questions
Are UK mortgage rates likely to fall soon?
Not sharply, and not immediately. Rates have held broadly steady since May 2026. A drop back below 4% is not on most forecasts before 2027 at the earliest. Bank of England decisions move things one way or the other, so check current pricing before you commit to anything rather than relying on last month’s numbers.
Can I still get a mortgage on a UK holiday let as an expat?
Yes. The lender and the ownership structure both carry more weight than they did before the tax rules changed. A growing number of owners are now buying through a limited company instead of personally, and that route needs a lender who is genuinely comfortable lending to an overseas applicant on that basis.
Does the Furnished Holiday Lettings tax change affect buy-to-let mortgages too?
No. Standard buy-to-let landlords have lived with restricted mortgage interest relief since 2020. Holiday lets have simply caught up to the same treatment, not been singled out for something new.
Is a residential purchase simpler than a holiday let for an expat?
Usually, yes. A residential mortgage looks at your income and the property. A holiday let brings letting income, tax treatment and compliance requirements into the assessment too, none of which apply if you are simply buying somewhere to live.
Should I buy a holiday let personally or in a limited company?
There is no single right answer – it comes down to your income, your tax position and what you plan to do with the property. Before April 2025, personal ownership was usually the simpler and cheaper route. That is no longer automatically true, and the two options now carry genuinely different costs depending on your circumstances.
If you have any questions about buying UK residential or holiday let property as an expat, contact us today to speak directly with one of our Mortgage Advisors.
Expat Mortgages UK is a specialist broker directly authorised and regulated by the Financial Conduct Authority. We work exclusively with expats and foreign nationals buying UK property with overseas income. Your home may be repossessed if you do not keep up repayments on your mortgage.
Call: +44 1494 622 555
Email: info@expatmortgages-uk.com
Related Pages
- Residential Mortgages – our full guide to lenders, rates and eligibility for a UK residential purchase
- Buy-to-Let Mortgages – our main guide to expat buy-to-let lending and eligibility
- Holiday Let Mortgages for UK Expats – lender criteria and eligibility for financing a UK holiday let from overseas
- UK Mortgages for Australian Expats – how the UK mortgage market works for expats based in Australia
- Should UK Expats Use a Limited Company for Buy-to-Let? – weighing up personal versus limited company ownership for expat property investment