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New-Build Second Homes Report 2011

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New-Build Second Homes Report 2011 RESIDENTIAL RESEARCH New-build second homes report 2011 2011 NEW-BUILD SECOND HOMES Demand for new-build second homes remains strong The demand for new-build second holiday season improves the chances of homes has bucked the trend of slowing achieving high levels of bookings. In this way, activity seen in the mainstream UK a second property has become an investment opportunity as well as just a luxury. housing market since the financial crisis hit in 2007. The demand for holiday lets has remained robust throughout the recession and its Gráinne Gilmore, Head of UK Residential aftermath, with a 70% uplift in bookings Research at Knight Frank, examines the for UK holiday lets in Devon and Cornwall in factors supporting this sector. the early months of this year compared to A desire for ‘staycations’, the search for 2010, signalling a healthy trade for the rest good investment returns by investors and of the year. the weaker pound have combined to boost demand for new-build second homes and Spending by holiday homes, especially in the most desirable areas of the UK (figure 1). domestic While housing transactions in the UK tourists is mainstream market have slumped since 2007, the number of second homes continued expected to rise Figure 1 to rise steadily in 2008 and 2009. by 2.6% a year in Second home hotspots In the popular second home destinations of Neighbourhoods with the highest % of second real terms over the South West, the growth in second homes homes (See chart page 5) continued in 2010, taking the number of the next decade holiday properties to new record highs in that region. The current low-interest rate environment is This growth is due to a combination of factors, also boosting investment interest in rental not least of which is the increasing desire for property. Property prices in many areas of ‘staycations’ in the UK. Spending by domestic the UK have yet to regain the heights seen tourists is expected to rise by 2.6% a year when the market peaked in 2007, which has in real terms over the next decade, while helped boost rental yields. In contrast to the spending by overseas visitors is tipped to minimal interest paid on savings accounts, climb by 4.4% a year. gross yields of between 6% and 7.5% achieved on some properties in the South West are Britons are seeking out holiday destinations pulling in investors. which involve less travelling, cutting down on expense as well as pollution. But they look The interest from prospective second-homers for resorts that can match the amenities and and investors has been further piqued by attractions on offer in some overseas holiday the weak pound, which not only makes the spots. This is one of the main reasons why UK prospect of holidaying abroad less appealing coastal resorts are so popular, especially in but reduces the attraction of buying a property the South West, where a wide variety of water overseas. Demand in the UK is benefitting activities are available – from surfing to sailing. from increased activity among those who Around half of the top 30 second home traditionally would have bought a home hotspots are based in the South West, and the in Spain or France. A slight easing in the region dominates the domestic tourism market mortgage market over the past 12 months – accounting for more than one in every five has also helped boost trade. trips taken by UK holidaymakers last year. We Finally, while the tax regime for furnished examine the prospects for this region more holiday lets has been overhauled in the fully on pages 4-5 and 6-7. last year, there are still favourable tax breaks The prospect of a second home which can be on offer for investors or those buying a rented out when not in use is also an attractive second home to let out, as explained on the Source: Knight Frank Residential Research, DCLG one, and, as explained on page 3, the longer opposite page. 2 KnightFrank.com home economics Demand for holiday lets remained income. Stonerush Lakes, a development of Because these properties are usually bought strong last year, with more than 39 holiday lodges by Charteroak Estates in Lanreath under lease or licence, a specialist mortgage million nights spent in UK self-catering in Cornwall, offers investors a guaranteed net is required. But lodges are typically more accommodation, underlining that the yield of 6% for two years, as well as the use of affordable than apartments or houses, which strong rise in 2009 was not a flash in the their lodge during a number of weeks of the year. can boost returns. pan and that the staycation trend has some way to run. Official figures show that visits to Europe by UK Taxing issues holidaymakers were down 4% in the year to April There are several tax breaks on offer for John Endacott, tax partner at Winter Rule, the compared to the previous 12 months. owners of furnished holiday properties holiday lettings tax specialists, said: “The Demand for self-catering accommodation which are available to rent. new regulation is likely to prove a minimal has risen by more than 20% since before the barrier for existing landlords looking to financial crisis. The spend on self-catering When the property is sold, the rate of capital extend their portfolio of existing properties flats and houses in England also rose by 5% gains tax (CGT) charged on any rise in the as they will be able to claim back losses last year to £1.7 billion, according to data from value of the property is less than half the made on refurbishing a new property against VisitEngland. This trend is expected to continue, usual 28% rate at just 10%, as holiday lets the money made from other properties. with Deloitte and Oxford economics forecasting fall under the Entrepreneurs’ Relief rules. that spending by Britons holidaying at home will “But the new rules are likely to mean that In addition, in some circumstances, the rise by a cumulative 30% by 2020. landlords are less inclined to invest heavily proceeds of the sale may be eligible for The boost in spending on self-catering in refurbishing a property when they buy, ‘Business Asset Roll-Over Relief’, which accommodation partly reflects the longer holiday especially if it is their first holiday let. In allows landlords who reinvest the sale season which is making it easier for landlords to some respects, this is only a continuation of proceeds into certain other assets to defer rent out their properties the whole way through a trend that has been prevalent for several payment of CGT until the new assets are sold. the year. years, given the scarcity of credit available The summer season, which used to mirror the But it is also worth remembering that holiday for mortgages and renovation since the school holidays, has become much longer as homes or other properties which come with financial crisis.” more people choose to take their holiday in June a time-limit on occupancy are treated as a The second change, which will come into or September instead of the traditional peak business for tax purposes, so VAT is payable force next April, lengthens the time a months of July or August. when the property is purchased, although property must be let out for it to qualify as As well as high levels of bookings at Easter, some lodges are excluded from this. Annual a furnished holiday let. the rising popularity of short breaks – long business rates are also paid instead of weekends or mid-week breaks, have effectively council tax. At present, landlords must make the extended the season to the whole year for the property available to let for 20 weeks a year, Owners of properties classed as a furnished most popular locations. and achieve at least 10 weeks’ occupancy holiday let can also claim up-front tax relief each year, with each let being no longer As a result, landlords are finding rewarding on the cost of furnishing a property. But yields. With the best properties commanding than 31 days. the threshold for reliefs on this spending, strong rates during the summer season, yields in currently £100,000, will fall to £25,000 from From April next year, they will be required to the South West average between 6% and 7.5%. April next year. make the property available for 30 weeks a But some high-end developments can garner year, and achieve 15 weeks’ occupancy. even more. One-bedroom apartments at the There have been some major changes to Ocean Gate development in Newquay, which the tax treatment of furnished holiday let A failure to do this means that the property have an average asking price of £175,000, can properties recently after consultations will not be treated as a furnished holiday garner an 8.8% yield with good occupancy rates, which have been rumbling on for more than let for tax purposes, instead falling into the while a three-bedroom house in the Talland two years. category of a residential property let. Bay development in South Cornwall, where New rules came into force in April this year While this is unlikely to impact on holiday properties have been selling for £330,000, can deliver a gross yield of 8.2%. However the cost of meaning landlords can no longer offset lets in popular holiday locations with long frequent ‘change-overs’ as well as maintenance losses made on holiday lets against their letting seasons, the concern is that it makes can add up, and those who opt to use a lettings other income.
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