Holiday homes market dramatic plunge following tax crackdown
Senior Investment Consultant at Solomon Investment Partners, Ian Williams comments on the latest property news, with interesting findings showing a hit to the holiday homes market.
Key points from news:
- Government stepping in to double and even quadruple tax on UK holiday homes to deter property vacancies for locals
- Heavy tax causing a drop in buying competition of up to 64% in some areas with seaside towns mainly affected
- Across the UK, this has reduced competition by about 10% compared to last year
- House prices soaring as buyers race to lock in mortgage rates with the highest rate of base-rate growth recorded in the last 16 years
- Rental sector is now cheaper than buying
Ian Williams said:
“Holiday home demand has fallen sharply. With the market being stimulated by people not being able to go on holiday abroad, a lot of investors looked closely at the staycation home market, having bought properties with short-term rewards.
“However, this surge in holiday home buying created a problem in particular tourist destinations, like seaside towns. With many properties bought up to just sit there vacant for a while, locals were impacted, so the Government stepped in to let local councils charge double council tax on second homes that are not let out or used for 70 days a year.
“The Welsh Government went a step further and allowed local councils to charge quadruple council tax on holiday homes. In seaside towns, local people and young families have not been able to get on the housing market because of the cost being outpriced by people willing to pay good money for holiday homes, so this was a long time coming for the Government to step in.
“This tax crackdown has meant there’s been a drop in buying competition by up to 64% in some areas like Devon, which I should clarify, this means a drop in demand not value.
“This finding is measured by comparing enquiry levels with the number of available properties in those areas. What this tells us is that people are no longer looking to buy these holiday homes – mainly in seaside towns.
“Across the UK, it’s reduced competition by about 10% so far up to May 2022 from the previous May, and we expect to see a % drop increase over the rest of year. By contrast, the 50 largest cities and towns in the country did the opposite, seeing competition jump back up by about 13%.
“This shows that towns, cities and more urban locations are seeing a lot more interest in people looking to invest in property, which aligns with the rush back into cities post-COVID.”
Top 10 biggest drops in buyer competition for seaside homes
| Location
|
Average Asking Price May 2022 | Change in buyer competition YoY |
| Ilfracombe, Devon | £274,497 | -64% |
| Brixham, Devon | £344,231 | -40% |
| Deal, Kent | £381,026 | -40% |
| Prestatyn, Denbighshire | £213,343 | -37% |
| Barton On Sea, Hampshire | £596,966 | -36% |
| Porthcawl, South Glamorgan | £354,288 | -35% |
| Canvey Island, Essex | £337,522 | -35% |
| Cromer, Norfolk | £293,297 | -33% |
| Abergele, Conwy | £241,968 | -32% |
| Bexhill On Sea, East Sussex | £366,396 | -31% |
Source: Rightmove
House prices soaring as buyers race to lock in mortgage rates
“Meanwhile, for the housing market, prices are soaring as buyers try to lock in mortgage deals with the base rate slightly increased recently.
“Up to April 2022 (from the previous 12 months), the base rate is 12.4% up from 9.7%, according to ONS. This is the highest rate of growth recorded in the last 16 years, apart from last June/July 2021, where there was a similar situation before stamp duty holiday ended.
“This surge in house prices means great news for landlords, so now is the time to take advantage. The increase in base rate from 2021 to 2022 was over 1200% from July 2021 to July 2022. However, that statistic is fairly insignificant over the last 25 years as similar jumps, as well as bigger and smaller ones, have occurred as banks try to control inflation.”
Rental sector is now cheaper than buying
“With soaring house prices and the recent base rate increase, for the first time in a while, renting is cheaper than buying, which is obviously encouraging signs for the rental sector.
“For the last 11 months or so, it’s been cheaper to buy a house on a mortgage on a 10% deposit in terms of monthly payments. In other words, those monthly payments have been lower on a mortgage than it would be to rent on the same property because of the rental growth running hot, and mortgage rates have been at record lows.
“However, the recent change in base rate has tipped the balance slightly, so assuming the 25% base rate is applied to mortgage products, this means it’s now £1 a month cheaper to rent that property than to buy – when we just talk about monthly payments.
“In the Knight Frank Rental Market Forecast, it’s reported that UK rents are forecast to increase by 4% in 2022 countrywide. Factors for this forecast include supply constraints and strong tenant demand, with a prediction of a 17.1% increase in rental values over the next 5 years.
“At a national level, the rental market is shaped by a deepening supply and demand imbalance, so whilst the demand for properties is greater than the supply, this will generally always be the case.
“Specifically in relation to that, the number of properties available to rent during Q1 of this year was a third lower than the five-year average in the run-up to the pandemic.
“As such, the gulf is getting wider, and it proves to us that the supply and demand issue is still there, which ultimately underpins and dictates the buy-to-let and rental market.”
Kindly shared by Solomon Investment Partners
Main article photo courtesy of Pixabay
