Plan Insurance Blog

Lender Stops Mortgages For Second Homes

As housing reaches record levels of unaffordability one mortgage lender has taken a bold stance. A typical home in England is now 8.7 times the average annual disposable household income, according to data from the Office for National Statistics. So is this sustainable and should policy makers be taking action?

Why Have Property Prices Risen?

House prices have risen swiftly since the end of the first lockdown as people search for homes with more space, encouraged by a government stamp duty holiday. Prices have continued rising since the tax break ended in September last year.

Marc von Grundherr, director of estate agent Benham and Reeves said: “Climbing the ladder is an incredibly tough task in today’s market, where only those with the financial collateral of an existing property can comfortably negotiate the cost of a purchase”.

Many commentators believe many people will rent long-term as a lifestyle choice, instead of a short-term solution before they purchase their own home.

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Leeds Building Society makes the bold move to stop lending to those buying second homes

Leeds, one of Britain’s 20 largest mortgage lenders has shocked the mortgage community by stating that it will no longer offer new lending on second homes. With £19.7 billion of loans currently out there, Leeds is making a historical move to declare a full ban.

Leeds’s CEO Richard Fearon said that the building society didn’t think supporting people purchasing second homes is compatible with their vision of making homeownership accessible. He said that second homes reduce the number of properties available at a time when there’s inadequate supply to meet demand.

Other high street names like Barclays, Halifax, HSBC, NatWest, Nationwide, Santander, TSB and Virgin Money, are all happy to lend on additional properties. It will be interesting to see whether other major lenders will follow Leeds’ lead, and whether they will make a statement about the building society’s big decision. It is hard to believe that the landlords investing in long term rental properties will be targeted in the middle of what is being described as a housing supply crisis. The focus of lenders and Government policy is likely to be on reducing holiday homes that are largely unoccupied or offered on Air BnB style lets.

The second home problem

There has been a backlash against the owners of some 495,000 second homes in the UK recently. This has put a spotlight put on areas like Cornwall, where property is becoming unaffordable to locals. This is a result of second home buyers with deep pockets paying premium prices for a summer house by the sea.

Councils are increasingly being given more powers to prevent second-home ownership as a measure to protect local residents. In legislation being put through parliament, councils will soon have the power to increase council tax bills for properties that are used for less than 70 days a year.

Less people are buying, but prices are staying high

The number of transactions in 2021 was at its highest since before the great recession. However, they began to slow this summer. Last month agents commented that agreed sales had definitely begun to drop.

Earlier this summer 21% of estate agents said they expected to be selling fewer houses in a year’s time, in a more recent poll 36% think that will be the case.

Are less able to buy?

Living costs are quickly rising, economic growth is slowing to a snail’s pace and interest rates are hiked. It’s easy to see why the housing market is losing momentum. Economists also agree that the government is likely to introduce some belt-tightening policy soon. This could slow house sales further.

However, even with this myriad of factors, house prices continue to rise. Right now, there is a shortage of homes and an excess of people that want to be homeowners. While that’s the case, prices will continue to be high.

Estate agents are reporting an all-time low in homes to sell. New homes are not going onto the market at any consistent rate.

Tom Bill, Knight Frank’s head of UK residential research, said that supply remained low because “people have taken a summer holiday for the first time in two years. Autumn will provide the acid test for the property market, and we expect annual price growth to slow to single digits as supply picks up and demand cools”. If that is true, Autumn will tell us what the future of the property market holds.

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