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Are Second Homes Under Threat?

19 December 2017EconomicsUKPolitics
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  • One in eight UK homeowners plan to buy a second home in the next decade
  • New Zealand bans second home buyers to curb housing crisis
  • Chancellor Philip Hammond has already encouraged UK investors to look outside of property

Over 5 million people in the UK currently own a second home, according to think tank Resolution Foundation1 – one in 10 of the country's adult population. That number could be set to increase too; a study conducted by UK insurance agency Cover Builder in October 2017 found that one in eight UK homeowners had plans to buy another property in the coming 10 years2. But these figures might come as something of a surprise given the recent rise in associated fees, as well as announcements that desirable destinations across the world are banning foreigners from buying second properties. Chancellor Philip Hammond has recently called for investors to look at alternative opportunities, prompting many to question whether buy-to-let could soon become a thing of the past.

The New Zealand effect

A big spark for the debate was ignited at New Zealand's announcement earlier this month that due to its affordable housing crisis, foreign home buyers would be banned from 20183. Auckland has become the fourth least affordable housing market in the world, despite efforts to curb interest with lofty taxation and fees for foreign buyers. In 2014, the Daily Telegraph noted that there were an estimated 60,000 British retirees living in New Zealand4, and the country's stance on further expats joining them may well disrupt many a retirement plan – especially with other countries expected to follow suit.

On 14 November 2017, St Ives won a High Court case to ban second-homers from buying property in the area, where almost a quarter of all property is a secondary residence5. The verdict swung in favour of the locals, who argued they were being outpriced by the holidaymakers, and other popular seaside destinations around Cornwall are now likely to hold similar referendums in the coming months.

Tax and the housing crisis

In October's Cover Builder study, 21% of those who said they weren't looking to buy another property stated that they had previously considered the idea. However, 64% cited "increasingly strict regulations and legal requirements" as critical factors in their decision not to invest. The recent rise in stamp duty surcharge means new UK buy-to-let investors now have to pay an additional 3% on the property price6, while both prospective and current second-homers were also hit by the loss of valuable mortgage tax relief in April.

This benefit is set to be cut incrementally each year until 2020, meaning that domestic second homes will become less attractive for many people. Both George Osborne and his replacement Chancellor Hammond have each stated that they are looking to make housing more affordable for first home buyers, and that indicates such restrictions are unlikely to let up any time soon.

The outlook on property

The present condition of the housing market may be cause for pause for prospective second home buyers. However, those who are set on another property could find better opportunities abroad. Given the potentially negative impact of Brexit on rental demand, you could find stronger options in European property markets such as Germany – as noted by law firm Ashurst7.

Those wanting to invest in another home can find out more in our Smart Move for Property article. If you have any questions about the topics covered in this post, your Relationship Manager is always on hand to help.

Citi does not provide tax advice, but we can recommend mortgage and tax advisors, and all clients have access to Citi's partners in those areas.


1 http://www.resolutionfoundation.org/media/blog/homes-sweet-homes-the-rise-of-multiple-property-ownership-in-britain/

2 https://www.coverbuilder.co.uk/blog-one-eight-british-homeowners-planning-buy-second-property-next-10-years/

3 https://www.independent.ie/business/commercial-property/new-zealand-bans-foreign-home-buyers-as-prices-surge-36281423.html

4 http://www.telegraph.co.uk/expat/before-you-go/11192243/Retiring-to-New-Zealand-what-you-need-to-know.html

5 http://www.dailymail.co.uk/news/article-5081317/St-Ives-wins-High-Court-fight-second-homes.html

6 https://www.which.co.uk/news/2017/11/buy-to-let-mortgage-rates-and-deals-for-landlords-how-have-they-changed/

7 https://www.ashurst.com/en/news-and-insights/insights/german-real-estate/

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