Sale prices in traditionally popular second-home destinations in the UK have fallen sharply since the spring as demand from buyers has dissipated. But while property agents say this is making some holiday homes look like bargains, buyers now have to factor in adverse tax changes.
Second-home markets in the south-west, the Cotswolds and Suffolk have seen a significant drop in the number of buyers since the market peak in 2007.
Demand from buyers has yet to pick up – and has even worsened in some locations this year as the economic outlook turned negative, say agents.
According to Savills, the upmarket property agent, most popular second-home destinations are seeing fewer buyers than 2010.
“We have no more than 20 per cent of the holiday home buyers we saw last year, and just 10 per cent of peak numbers,” says Jonathan Cunliffe of Savills Truro. This trend has also been seen in Cardiff, where Peter Reilly of Savills estimates there are 25 per cent fewer second-home buyers compared with spring this year – and 50 to 60 per cent fewer than at the peak. Only 10 per cent of sales in the region are now to second home buyers, compared with 15 per cent last year and 30 per cent in 2007.
This collapse in demand has seen sale prices fall further this year, with a growing number of vendors having to reduce the asking price of their properties to achieve a sale. Figures from the Land Registry show that average prices in the south-west are down 2.4 per cent in the year to September.
Some agents believe price reductions are set to continue, as more vendors who need to sell to reduce debt or release cash put their properties on the market. In Truro, as many as 50 per cent of Savills’ sales are for these reasons.
“We had a ten-year bull run and I doubt we’ll ever see it again,” notes Cunliffe. “There are sellers now who need to sell – and this winter could be a good time to buy without competition.”
James Grillo of Chesterton Humberts agrees. “Even though the market is tough at the moment, it is an excellent time to buy if you can find a good house in the location you are looking for.”
Christopher Bailey of Knight Frank says asking prices in the West Country fell by between 15 and 20 per cent during 2010, but believes they have begun to “settle down”.
“I do believe we are getting to a point where guide prices are now realistic and it is more of the matter of finding the right buyer who actually has the funds in place to be able to purchase the property,” he claims.
But while prices are becoming more attractive, some of the tax benefits of owning a second home have already been reduced – and further negative changes are to be introduced in the coming year.
This week the government announced proposals to remove the discounts that second homeowners receive on their council tax bills. Currently, around 250,000 second homeowners in England receive discounts of between 10 to 50 per cent on the full council tax rate for their properties.
If the discounts are scrapped, holiday homeowners will see costs rise by about £600 a year, based on the average 2011-2012 council tax bill in England.
From next April, owners will also have to meet a stricter definition of what constitutes a holiday let for tax purposes. New rules stipulate that a property must be available for letting to the public for at least 210 days a year, and actually let for 105 days a year. But meeting these criteria will only allow owners to offset losses made on a holiday let against other income from a holiday lets business. Since April 2011, the ability to offset losses against any income was scrapped.
Even so, agents say the tax changes – on their own – will have little effect on the prime end of the second-home market. “Our view is that these plans are unlikely to have any significant effects on demand at the middle to higher end of the second-home market,” says Bailey. “Generally, families who can afford to purchase a second home will not be put off by percentage increases in their council tax.”