THE SECOND HOME IS WHERE THE HEART IS

Waterfront and rural domestic getaways are booming, which is attracting interest in second homes and holiday lets. Favourable mortgage terms can enable purchasers to own their dream getaway while using Airbnb to cover the costs

The town of St Clears sits in a lush, unspoilt valley in picturesque Carmarthenshire. Stone cottages pock mark the landscape. A 12th century Norman Castle lies where the River Tâf meets the River Cynin.

The scene is typical of rural Carmarthenshire, known as the “Garden of Wales”. Every year, tourists come to visit its ancient towns and rolling countryside, or to travel to neighbouring Pembrokeshire, where they can walk 186 miles of trails and seek out a private spot on one of more than 50 beaches.

However, this year will be like few others. The popularity of ‘staycations’ has soared during the pandemic and towns and villages in the UK’s hotspots are anticipating a strong recovery in visitor numbers this summer – none more so than little St Clears.

The town is the UK’s top trending hotspot, according to Airbnb’s analysis of its own year-on-year search growth. In a break from the norm, rural and waterfront locations dominate the top ten, including the Forest of Dean in Gloucestershire, Clovelly in Devon, Bosham in Sussex and the Primrose Valley in Yorkshire. The surge in interest is taking place in tandem with a boom in purchases of second homes and holiday lets as consumers seek out more permanent links to coastal and waterfront locations following a year of lockdowns, says Tim Woods, partner and head of country at Knight Frank Finance.

“We’ve seen a big increase in people wanting to have second homes in the UK in addition to their main residence and they often want to rent them out to cover the costs,” Woods adds. “A number of lenders allow you to take the option to rent them for just 90 days a year, which gives homeowners the option of owning a second home while having some of the costs covered by the likes of Airbnb.”

The ability to let out a property for 90 days a year has been a crucial factor underpinning the surge in second home purchases. The opportunity isn’t new, but few purchasers showed much interest until the pandemic, when a renewed desire among buyers to live closer to rural and waterfront locations began, according to Woods.

“The flexibility of the finance, plus the new economics of domestic holidays, has provided the certainty a lot of people needed in order to make the dream a reality.”

That interest climbed substantially during the early phase of the pandemic. Following the reopening of the market in spring 2020, offers accepted for coastal properties climbed 74% between 13 May and the end of 2020 compared with the equivalent period in 2019 according to data from Knight Frank.

“With the sheer scope of the rise in demand for both these kinds of properties and staycations as a holiday choice, buyers now have the confidence they can let the property on the days it’s empty,” Woods says. “Secondly, tight supply of properties available to rent to holidaymakers has increased the weekly cost of rentals, which means buyers have greater assurance about the income their second homes can generate.”

With all this in mind, purchasers are increasingly tempted by the prospect of letting out properties for longer than 90 days, which can become a flourishing second source of income. If that’s the case, homeowners need to think carefully about which mortgage they opt for, according to Woods.

Buying a property as a second home to rent out for 90 days or less can be covered by a standard residential mortgage with flexible terms. However, those that wish to rent a property out for more than 90 days must get what’s known as a holiday let mortgage.

There are important differences between the two. A holiday let requires a deposit of 25% of a home’s value, whereas a second home mortgage only requires 20%. Plus, the affordability check on a second home mortgage will be based on a buyer’s income alone, whereas those for a holiday let will be based on the income the home generates – more like a business.

There are other considerations. Buyers of second homes will pay an additional 3% stamp duty and will be liable for capital gains tax from the point of purchase. A holiday let, on the other hand, comes with running costs. Utilities, council tax, maintenance and management charges must all be factored in. All, however, are tax deductible.

Mortgage lenders look just as favourably on both. Net mortgage borrowing hit £11.8bn this March, the strongest since records began in April 1993. Renewed confidence that the economic recovery is now firmly embedded is driving lending. Banks are now competing for market share and view the second home market as ripe for growth.

The specialist holiday let mortgage market has also returned to growth, having shrank at the outset of the pandemic. Mortgage options for those looking at holiday lets have grown by 45% in the past six months and product availability is double what it was back in August 2020, according to Moneyfacts.

Lenders’ eagerness to finance deals is likely to fuel growth in purchases throughout the summer months, which will have a positive knock-on effect for local economies that were starved of tourists during the early months of the pandemic.

“Buying a second home was a big luxury for a lot of people but we’re going to see a lot more of it happening now,” says Woods. “The flexibility of the finance, plus the new economics of domestic holidays, has provided the certainty a lot of people needed in order to make the dream a reality.”

Knight Frank Finance.

knightfrankfinance.co.uk +44 (0)20 3944 4575

Knight Frank Finance is a whole-of-market mortgage and insurance adviser with an extensive network of over 200 high street lenders, private banks and financial institutions. We can help with:

  • Mortgages for all property types in the UK, including second homes and buy-to-let
  • Large loans and complex requirements
  • Country House, Farms & Estates Finance
  • Personal and Life Insurance
  • Borrowing into retirement
  • Green Mortgages

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