Supply is now the key to second-home prices

The number of second homes in England rose to a new high in 2009 but agents say that growth this year will depend on the supply of properties, which is currently 20 per cent below the long-term average.

Another 6,212 properties were registered as second homes last year – an increase of 2.6 per cent, taking the total to an all-time record of 245,384, according to research from Knight Frank, the property agent. This follows a contraction of 0.4 per cent in 2008.

Renewed economic and consumer confidence in early 2009 encouraged more affluent buyers to reconsider purchases they had put on hold in 2008, according to Liam Bailey, head of residential research at Knight Frank.

Low interest rates as well as a weak pound – making house purchases abroad more expensive – also persuaded buyers to look at second homes in the UK.

The top second-home hotspots in 2009 were in the South Hams area in Devon, including locations such as Dittisham, Kingswear and Salcombe.

Nearly one in 10 homes in the South Hams district are registered as second homes.

In London, concentrations of second homes can be even greater than in the coastal hotspots, due to demand for pieds-à-terre from commuters. In the City of London, nearly a quarter of residential units in 2009 were classified as second homes.

High clusters of second homes can drive local house prices higher by around 130 per cent. In Constantine Bay in Cornwall, a second-home hotspot, average prices are 131 per cent higher than the local average, while Rock and Trebetherick – also in Cornwall – have experienced second-home price boosts of nearly 100 per cent.

Second-home numbers are now expected to increase. “Our view is that demand will continue – but the potential growth in second homes will be determined by the supply of properties,” says Bailey.

But, according to Savills, investors can still profit from the growth potential in second home locations in the UK.

Towns such as Croyde and Kingsbridge in Devon, Totland on the Isle of Wight, and Marazion and St Ives in Cornwall are all well-placed to move up the prime coastal ranking when the market strengthens, says Lucian Cook at Savills.

Agents also say they have seen an increase in the number of purchasers interested in investing in a holiday home development. Some of these schemes guarantee rentals for a period from completion.

However, these developments often impose a hefty service charge to cover furniture replacement and refurbishment.