“Buying a second home is viewed as an investment for the future,” says Alistair Malins, CEO of Second Estates
“For the past decade buy-to-let has been people’s preferred way to generate income from a second home, but we’re now seeing a boom in the UK’s short-term holiday let market, with average income per booking up 6.4% in the first four months of 2017.”
While a weak pound is attracting more overseas tourists and encouraging Brits to stay put, owning a second property has become more challenging. Since April 2016, second homes have been subject to a 3% stamp duty surcharge, ranging from an extra 3% on the first £125,000 up to an extra 15% on properties over £1.5m.
In some of the UK’s most popular second homes destinations town councils are looking at ways of restricting second-home ownership, as towns and villages reach second-home saturation point. Last year over 80% of voters in St Ives, Cornwall, backed proposals to only grant planning permission to new developments if homes there are reserved for full-time residents. Councils in the Lake District, Derbyshire Dales, and north Devon are also considering schemes.
Matthew Turner, CEO of Astute Property Search, believes it is still worth investing in a second home. He says: “Investors are gradually coming to terms with the additional 3% stamp duty and factoring it into their figures. Towns like St Ives have clamped down on second home purchases, but in many ways, this could push investors to get in now before other towns follow suit. Holiday homes still offer excellent income streams and flexibility for personal use.”
Another option is to consider buying a second property overseas, although as Tal Orly, CEO of open equity firm Cogress explains, while British second homers have traditionally set their sights on Spain and France, the proportion of British-owned second-homes in European nations has been in decline. He says: “According to Department for Communities and Local Government 2017 statistics, between 2008 and 2014, the proportion fell from 42.4% to 32.9%. The percentage of second-homes in non-European nations has increased from 1% to 16%.”
Nevertheless, in France, the French Alps and Paris remain popular areas for those seeking a mix of vacations, good rental yields and strong long-term investment potential. Lloyd Hughes, communications director at Athena Advisers, says: “Mortgage rates are very low, so with an interest rate of just over 2% and rental yields up to 5% there is a decent margin to cover maintenance and a good part of the mortgage.”
Other factors to consider include extra running costs, such as property insurance. Philip Thorn, head of direct home insurance at Hiscox, says: “We get many calls from people who don’t want to have separate policies and different premiums and renewal dates for two homes. If your main home is insured with us, we can extend that to cover the second UK property, maintaining one policy, and one renewal date. It is a seamless way of insuring your second home.”
Looking ahead, property generally continues to appreciate over time and provide an attractive return on the investment if it is sold. Second homers should bear in mind that while capital gains tax is not payable on their main residence, it would apply to any money earned from the sale of a second property.
1. Check the appreciation of properties over the last decade in the area you select.
2. Find out about infrastructure and amenities.
3. New-build properties in good locations can work well for the short-term rental market.