It's easier than ever to have two pads

New pension rules, lifestyle changes and equity build-up help homeowners to buy again, says Stephen Pritchard
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The Independent Online

Second homes were once affordable to just a few. But changing lifestyles mean that is no longer the case. In fact, second homes are one of the fastest growing parts of the property market. A report by the Centre for Future Studies, for the financial services company Direct Line, says that demand for second homes will rise by 24 per cent during the next decade. Some of this growth is being driven by the buy-to-let investment market, but the last few years have seen an upswing in demand for holiday homes, second homes in the country and pieds-à-terre in cities. Some families are opting to buy a small city flat for weekday use and a larger rural home for the weekends.

Keeping a city base enables buyers to look further afield for their country properties, because they are commuting weekly, rather than daily. Buying in a more remote area helps the budget go further too. But homeowners are also taking advantage of equity built up during the house price boom, especially in London and the South East. This is making second homes affordable to a wider group of people.

Changes to pension rules, allowing investors to hold residential property alongside shares and other financial instruments, are expected to boost interest in second homes from next year. As well as buy-to-let properties, the new regulations for self-invested personal pensions (Sipps) will allow savers to shelter holiday homes or other second properties from tax.

The rule changes have prompted controversy, with suggestions that tax breaks for second homes will push prices further out of reach for first-time buyers in rural areas. But the changes to the pension rules are only part of a wider trend towards second-home ownership. Demographics and changing working patterns are also playing a part. Buyers of second homes tend to be older, with those retiring accounting for a significant slice of the market.

Perhaps surprisingly, the research found that the highest concentration of second homes is not in rural idylls, but in cities. London has the highest density of second homes, but there are also significant numbers in cities such as Bradford, Leeds and Glasgow.

"These properties tend to be smaller accommodation for use during the week," says Simon Ziviani, Direct Line spokesman. "Commuters are looking at city and country property combinations, to suit their lifestyles at different times of the week."Mr Ziviani says greater awareness of second homes, and the potential lifestyle benefits, are driving growth in the market. But easier access to financing is also a factor.

Higher property values give homeowners a number of options when it comes to raising money for a second property. The first is to release equity from an existing property by remortgaging it. Another option is to raise cash by selling the family home and moving to a smaller one. Some buyers are more willing to invest their savings in another property, knowing that they have substantial equity in their main home. But Direct Line's survey found that 34 per cent of buyers will use a mortgage to finance a second home, against 26 per cent using savings and 10 per cent remortgaging their main home.

Most lenders will agree a mortgage on a second home, provided the buyer has sufficient income to cover mortgage repayments on two properties. For older second-home buyers, this is unlikely to pose too many problems, as they are likely to have relatively small mortgages and their incomes will have risen over time.

Ray Boulger, the senior technical manager at mortgage brokers Charcol, says most banks and building societies will arrange mortgages on second homes. Holiday lets are more difficult, as they fall into a grey area between buy-to-let and residential use.

Buyers looking for a second home primarily as an investment might opt for an interest-only mortgage, in order to keep costs down. The mortgage will then be repaid from its sale. But whatever the mortgage arrangement, Mr Boulger advises second-home buyers to avoid borrowing more than 90 per cent of the value of each property. Doing so gives access to the best interest rates and avoids the need to pay expensive mortgage indemnity premiums.

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