The topic of second homes has always been a controversial one, and is becoming moreso as many first-time buyers struggle to get on the property ladder.
Since Brexit, buying a second home in the UK has become far more popular than it used to be, with recent figures from the English Housing Survey showing that 60% of holiday homes are now located in the UK rather than Europe.
Covid-19 has also played its part, after many people realised they could work without having to be in an office five days a week, those that could started looking to ‘second home hotspots’ for a better quality of life.
This is causing a big problem for locals who feel pushed out of their own communities, leading to many campaigning for a clampdown on second home ownership in their local towns.
The 2021 Census revealed that around 70,000 addresses were used as holiday homes across England and Wales. In some areas more than one in 10 addresses were being used as holiday homes.
The influx of newcomers into some of these sought-after locations – such as Cornwall and the Kent coast – has seen property prices soar by 20% over the past two years, effectively pricing local buyers out of the market.
In many of these tourist hotspots, the house prices no longer reflect the income of locals, meaning that they are having to move elsewhere, leaving a shortage of workers to staff the pubs cafes and local shops.
This displacement of the local community, particularly by non-permanent residents, impacts on local services, resources, and can even lead to the closure of schools, which effectively results in many of these locations becoming ghost towns out of season.
Holiday let versus second home
There is, of course, a big difference between a second home that is occupied just at weekends, or for a few weeks of the year, and a holiday let that supports the local tourism economy. Local economies and businesses get a huge boost from holidaymakers who stay in the area and spend money on shopping, activities and entertainment and this business is very much welcomed.
It is the second homes that stand empty, while the younger first-time buyers who have grown up in the area need to look elsewhere for affordable housing, that must be addressed.
House prices and rents have both risen significantly in recent years, and one of the factors contributing to this is the lack of affordable housing.
The new Labour Government has promised to tackle the problem, and pledged to build 1.5 million new homes within its first five years in power, delivering the biggest boost to affordable housing in a generation.
While preserving the greenbelt, Labour said it would take a more “strategic” approach to greenbelt land designation than the Tories, and build more homes, in the right places, giving priority to first-time buyers.
The problem for locals is not only buying property in these second home hotspots, it is also difficult to rent as there are not enough properties being put up for long-term rental.
Many landlords have switched from buy-to-lets (BTL) to holiday lets, because they can earn more money, pay less tax, and there’s less legislation.
Tackling the problem
To address the issue of second homes and the lack of affordable housing in these hotspots, the general consensus is that greater taxation is needed, and steps have already been taken to tackle the issue.
The Department for Levelling Up, Housing and Communities has given councils more power to double council tax on second homes and properties that are empty for long periods of time.
The new second homes council tax premium is expected to raise more than £100m annually for councils from 2025. Second homeowners with genuine holiday lets must prove that the property is rented out for a minimum of 70 days a year and are available to rent for at least 140 days. In Wales, they must be rented out for at least 182 days a year and available for at least 252 days.
Also, in some areas, the maximum council tax premium for second homes is up to four times the standard rate – a 300% hike.
Second home buyers incur a surcharge of 3% on top of the normal rate of Stamp Duty. In Scotland, buyers pay an extra 4% on second homes.
St Ives in Cornwall was the first place to ban the sale of any new-build homes as a second residence, Whitby in Yorkshire and Brighton could be the next to follow suit.
However, while these measures might seem like a good idea and help first time buyers in the short-term, in the longer term this could discourage development and therefore affect the supply of more affordable housing in those areas.
In the Spring Budget this year, the previous Government announced it would abolish the furnished holiday lettings tax regime from April 2025. This will eliminate the tax advantage for landlords letting out short-term furnished properties over those who let out residential properties to longer-term tenants.
It is hoped that by making these changes it will give local residents more of a chance of being able to rent such properties. For our part, Pluto is supportive of the efforts to provide more housing for local owner occupiers and renters – and are particularly keen to fund schemes that promote this.
While all of these measures are steps in the right direction, the private sector too can help make a difference. That way we may speed up the time it takes before local people in these communities reap the benefits.
Jonathan Scott is lending director, South West at Pluto Finance
