Second home sales have fallen off a cliff, a new analysis of property transactions has revealed, with higher mortgage rates and a council tax crackdown pushing the pandemic-fuelled holiday home boom into reverse.
A record 26,290 second properties were purchased in 2021 as homeowners spent their lockdown savings and investors rushed to take advantage of enormous demand for domestic holidays, according to Hamptons analysis of data from Countrywide, one of Britain’s largest property groups.
However, by 2022 the tide had turned. The number of second homes purchases dropped to 20,340 last year – a fifth lower than the 25,600 sales in 2019, the last normal year for the property market before the pandemic.
And in January and February this year, second home sales accounted for just 1.4pc of all property transactions, down from 1.7pc in 2022 and 1.8pc in 2021 – the lowest figure ever recorded by Hamptons.
Estate agents have reported rising numbers of owners selling their second properties in a bid to consolidate costs, mitigate higher interest rates and avoid higher tax bills coming down the track.
A buyer who purchased in January 2021 with a two-year fixed mortgage could have locked in an average rate of 2.52pc while sub-1pc deals were still available for the most attractive borrowers. When that deal expired in January this year, the average two-year rate had more than doubled to 5.79pc.
Aneisha Beveridge, of Hamptons, said higher borrowing costs had made it much more costly to keep two properties.
Ms Beveridge said: “When interest rates were low at around 1 or 2pc it was relatively easy to purchase a second home and some were even refinancing their primary property and withdrawing equity to do so.
“But those sums have now fundamentally changed. Most people will be focusing on paying down their main home loan if they can to navigate higher interest rates.”
The Levelling Up and Regeneration Bill, which is currently making its way through the House of Lords, will give local authorities the power to double council tax for second home owners in a bid to prevent empty properties hollowing out local communities.
Councils in tourist hotspots across the country, including South Hams, in Devon, Whitby in Yorkshire and Cornwall, have already voted in favour of a 100pc tax premium on second homes….
Homeowners who previously rented out their additional properties as a holiday let have also made for a swift exit amid stricter tax rules. Holiday let companies, used by owners as a means of holding their properties in a more tax-efficient structure, are being wound down at a growing pace.
In the first three months of this year 415 holiday let companies were struck off from Companies House, almost 40pc more than in the same period in 2022.
Ms Beveridge said: “Lots of landlords switched from buy-to-let to the short-term holiday market to capitalise on the staycation boom.
“But many people don’t do the sums properly on how much they could actually make. It looks good on paper but managing costs, utility bills and cleaning expenses all eat into returns. It’s also become a crowded market with lots of competition, especially on the coast.”
As of this month, holiday let owners in England must prove their properties are being rented out for a minimum of 70 days a year in order to qualify for relief from business rates and are available to be rented out for at least 140 days a year.
Holiday home owners could also soon be subject to spot checks and require a licence to stay in business under plans being mooted by the Government.
In Wales, those renting out their holiday homes will only be exempt from council tax and business rates if the property is available to let for at least 252 days and has guests for at least 182 days. This is up from the existing minimum level of successfully letting for 70 days and having the property available for 140 days.
Tougher council tax rules also came into force in Wales this month, with local authorities handed powers allowing them to charge up to 300pc in levy premiums on second homes.
Carol Peett, of West Wales Property Finders, a buying agent, http://www.westwalespropertyfinders.co.uk said there had been an influx of second home owners selling up in Wales in the second half of last year when the tax changes were announced.
Ms Peett said: “The majority of the properties coming onto the market were mid-range properties between £400,000 and £650,000 and used partly as second homes, but mainly as holiday lets. The huge increase in the number of days that a property had to be let to qualify for business rates meant they would likely no longer qualify.
“There has not been a noticeable increase in the number of higher end second homes for sale used purely as second homes as the owners can afford to pay the increased council tax.” …
The Daily Telegraph – 9th April 2023 https://www.telegraph.co.uk/property/uk/tide-turned-britains-holiday-home-dream/
N.B. The fact that people are selling properties used as holiday lets will mean there are less available to rent, demand for those that remain will therefore increase making holidays more expensive. Higher rents, however, will cover any additional Council Tax demands so, for owners, it is not all bad news. It is the holiday makers who will end up paying and this will hit the local economy as they will have less money to spend whilst there.