How coronavirus is threatening the UK’s second home market me

A month ago, Alice from Haslemere, Surrey, was getting ready to drive to her holiday home in Cornwall, a five-bedroom property in Padstow, to prepare it for the busy summer season. It was just before March 23, the date the UK went into lockdown to slow the spread of coronavirus. But after a call to her Padstow neighbour, another second-home owner who was already there and self-isolating, she changed her mind, fearful of the welcome she might receive. Alice, not her real name, says her neighbour, a scientist, had suspected a lockdown was looming and was already taking precautions against a possible backlash from locals. “She keeps her car off the street in fear of [malicious] damage and goes for walks late in the day to keep her head down.” Since the outbreak of Covid-19, tensions have increased in communities across the UK where there is a high proportion of second homes, including the West Country, the Cotswolds, Scotland and Wales. Some blame those waiting out lockdown in their second homes for bringing the virus, infecting the local population and putting additional pressure on local medical services. An app developed at King’s College London, with the start-up Zoe Global and others, tracks self-reported Covid-19 symptoms across the UK. After the lockdown was imposed, it found that second-home hotspots had higher incidences of the virus than surrounding areas, fuelling concern that second-homers could be spreading it. In the past two weeks, the higher rates of infection in some holiday home hotspots have begun to die down. “This is speculation,” says Dr Tim Spector, lead researcher, “but the reduction might be explained by Londoners moving to second homes, reporting symptoms, then staying in lockdown. Only if they went wild and spread it around would you see these areas as staying higher.”

If he is right, many second-home owners are respecting social-distancing measures in their host communities. But the crisis is straining an already fractious relationship. Many blames second homers for driving up house prices in their areas and increasing their local economies’ reliance on tourism. At the same time, many businesses have become dependent on high-spending tourists and second-home owners. In 2019, the average property price in the town of Salcombe in Devon was nearly £706,840, according to Hamptons International, up 33 per cent in the past 10 years. Over the same time, average prices in the Cotswolds market town of Chipping Norton have risen 52 per cent to £427,740. In Padstow, a fishing village on the Cornish coast, prices have jumped 29 per cent in the past five years to an average of £466,540. In nearby Rock, the average is £477,940 — about £6,000 more expensive than London’s.

In some areas, bitter feelings have worsened with the accusation that some second-home owners have been exploiting a loophole to claim grants from the government. Councillor Judy Pearce, leader of South Hams District Council, in Devon, says locals are fed up with owners who say their second homes are available for rent for 140 nights a year just to avoid paying council tax, and who may now be entitled to up to £10,000 each under the emergency small business grants fund, which was intended to help small businesses through the coronavirus crisis. Meanwhile, struggling local small traders who do not have premises and pay business rates cannot apply for a grant. “A certain coterie of owners who have a sense of entitlement will always get up the noses of local people, but this grant is a huge issue,” Pearce says.

Could the pandemic spell the end of the social acceptability of owning a second home in the UK? Many thinks not. Estate agents are keen to point out what they see as the upsides to living in areas with high numbers of second homes. “Locals also benefit from the arrival of businesses — such as Daylesford Organic [a farm shop in Hingham] — that are the result of the Cotswolds becoming more aspirational for second-home owners,” says Harry Gladwin of The Buying Solution, a property consultancy. “For locals, it’s a case of ‘can’t live with them, can’t live without them,’” says Chris Clifford of Savills in Cornwall. Some locals do not want them at all. Between 1979 and 1994, the Welsh nationalist group Meibion Glyndwr set fire to 228 English-owned second homes in Powys, Wales. Despite that, the area remains popular with second-home owners. But tensions have resurfaced, says Angela Steatham from Llanrhaeadr Ym Mochnant, in north Powys.


London’s skyscraper boom runs out of steam

London’s decade-long tower building boom is slowing, with the coronavirus pandemic expected to act as a further drag on new projects already checked by the fallout from Brexit and the Grenfell fire. In 2019, a record 60 towers were completed, more than the combined total of the previous two years and well ahead of the earlier high of 26 set in 2016, according to a study published on Tuesday by think-tank New London Architecture and estate agency Knight Frank. The overall trend shows a gradual acceleration in the building of new high rises from 2009, until the sharp rise last year. Annual completions were up 20-fold in 2019 over the number a decade ago. But last year’s total is unlikely to be surpassed soon, according to the authors of the report, with work on new projects slowing and many building sites being forced to shut down because of the pandemic. Work started on just 30 high rises last year, the lowest number of constructions starts since 2015.

This year may mark the first drop in the growth of the development of tall buildings in London for a decade,” said Peter Murray, chairman of NLA and one of the authors of the report, who warned that the impact of the coronavirus outbreak would further hamper construction. London’s skyline has been dramatically reshaped since 2009, with 214 blocks of 20 storeys or more appearing. The handful of skyscrapers which once pockmarked London have proliferated into distinct clusters across the capital. The building boom has transformed neighbourhoods from Canary Wharf, the city’s second financial centre, in the east, to the suburb of Croydon in the south. New planning applications peaked in 2015, before falling sharply in 2016. The record number of applications are “a legacy of Boris Johnson and some of his key advisers at the time,” said Stuart Baillie, head of town planning at Knight Frank, referring to the UK prime minister’s time as mayor of London.  City Hall’s incumbent, Sadiq Khan, has been more focused on increasing the number of affordable homes, he added. The glut of applications towards the end of Mr Johnson’s term led to a boost in new starts a year later, and the uptick in completions up to 2019. But since 2015, the number of annual applications has fallen by more than a third. As well as mayoral policy, the Brexit vote in 2016 and the three years of political wrangling that followed has dented confidence in the London market. The Grenfell tower fire in June 2017, which killed 72 people, led to intense scrutiny of the safety of high-rise buildings and calls to strengthen fire regulations.

As developers of tower blocks face greater hurdles, Mr Khan’s ambition to build 65,000 new homes a year, from a base of about half that, risks slipping further out of reach.  Many local authorities — particularly those in outer boroughs, which now account for more than a third of all planned towers — regard tall buildings as critical in meeting ambitious housing targets. Nearly 90 per cent of 2019’s completed towers were residential. “The housing supply issues in London, in the context of high land values, mean that height is going to remain part of the equation,” said Mr Baillie. Overall, 16,470 new homes were built in towers last year, almost a quarter of them defined as affordable. Without more towers, said Mr Baillie, “I can’t see London getting close to its housing target.”

Home improvers hit by remortgage problems

Homeowners who have often spent tens of thousands of pounds on loft conversions, basement dig-outs or kitchen extensions are being locked out of remortgage deals that reflect the higher value of their property, following the ban on physical surveys.

Major improvements can increase the value of a property, boosting the level of equity for mortgaged homeowners who may then refinance on more attractive terms, or take out a larger mortgage based on the higher value of the property.  However, the government last month asked buyers and sellers to delay transactions while coronavirus restrictions were in place, and barred surveyors, as well as estate agents and prospective buyers, from visiting occupied homes — a measure that has hit the mortgaging options available to home improvers. “If you have significantly improved a property and created value, the only way a bank would be prepared to lend on that new value would be if they could go and have a look,” said Simon Gammon, managing partner of mortgage broker Knight Frank Finance. “In lower value properties they might accept a ‘drive-by’ valuation to verify that someone has gone into the roof, but it’s more likely a physical internal inspection would be required to establish the new square footage on which they are lending.”  As a result, he said, those who have improved their home and now want to get a better rate are “potentially stuck”.

For mortgages which are a smaller proportion of the overall property value, lenders and surveyors have in the past been willing to use “desktop” valuations or automated valuation models (AVMs). Rather than sending round a surveyor to inspect a property, these take previous values and price changes in comparable properties in the same location to assess a home’s current value.  Coronavirus and your money ‘Chancellor must iron out problems for limited company directors’ Coronavirus: Your questions answered as furlough scheme opens Where to look for the market rebound Since the Covid-19 restrictions came into force, lenders have relaxed the loan-to-value limits under which they are willing to use these automated options, to allow more loans to go ahead.

Nationwide, for instance, said on Tuesday it would be able to use these alternatives for mortgage valuations up to 85 per cent loan-to-value.  Yet brokers said surveyors and lenders were still unwilling to use such data-driven models to sign off big changes in value driven by building work without “eyes on”.  Aaron Strutt, product director at mortgage broker Trinity Financial, said one client had spent £100,000 refurbishing a property and was due to remortgage in May after coming to the end of their fixed-rate deal. A combination of the surveyor problem and changes to the way banks have reduced their income-related criteria meant they could not refinance to account for the value they had added.  “For the moment, they will need to swap to an exit penalty-free tracker rate to avoid an expensive standard variable rate with their existing lender and wait for the market to improve,” Mr Strutt said. Substantial home improvements can raise the value of a property in excess of the cost of the work, which may easily run into six-figure sums for ambitious structural work such as a basement dig down.

A loft conversion on average costs a more modest £23,000 across the UK, according to a 2019 survey by Hargreaves Lansdown, though the bill is more likely to start at around £40,000 in London.  Nigel Bedford, senior partner at broker, cited a client who had spent about £260,000 on a basement dugout, loft conversion and large rear extension, having bought the property in north London for £890,000 eight years ago. The client, who aimed to take out a larger mortgage, estimated the property’s new value at £1.75m but had to settle for a “straight swap” remortgage — albeit at a better rate — on a lower value of £1.48m in the absence of a physical survey.  “They have added lots of value, but clearly none of that is going to show up on an automated valuation model,” Mr Bedford said.  While lenders have been relaxing their constraints on the use of non-physical valuations to assess properties, higher value properties may not qualify for these, since surveying firms often place a cap on the property value beyond which they will consider an automated valuation.

Adrian Anderson, director of mortgage broker Anderson Harris, said that as a rule of thumb the cut-off point was about £2m, though some lenders are capping at £500,000 and others such as NatWest will now entertain automated valuations for homes worth up to £3m. This means that someone borrowing £500,000 to buy a £2m home (a 25 per cent LTV mortgage) might be able to borrow since an automated valuation. But someone borrowing the same sum on a £4m home — at 12.5 per cent LTV — would require an in-person survey. “There’s an element of frustration because from the lender’s perspective the risk is less,” he said. Another issue raised by Mr Anderson was that lenders often refused to consider an automated or desktop valuation on flats rather than houses, affecting high-density areas in cities such as London, where flats account for a higher proportion of housing stock. “Banks are much more conservative about apartments than houses. There’s a perceived added risk,” he said.