New research by Rathbones Group shows buy to lets and holiday homes in tourist hotspots have been particularly vulnerable, with rising borrowing costs and weaker capital gains undermining their long-term investment case.
The longstanding obsession with property as a means of building wealth in the South and East of England is increasingly outdated, as today’s house buyers are unlikely to match the gains enjoyed by past generations, Rathbones, a leading UK wealth and asset manager, concludes in new research.
Researchers and economists at Rathbones analysed the relative performance of equity investment and housing in those regions, broadly over the past century. The report, “Don’t Bet the House”, concludes that the boom years in property investment which lasted from the 1980s to the mid-2010s are now over.
Analysing house prices in the South West, South East and East of England since 2016, researchers at Rathbones found that residential property rose by just 3.7%, 2.6%, and 2.8% per year, on average, respectively between 2016 and 2024. That means the average house price in the latter two regions failed to beat inflation, and in the South West, only kept pace with it.
Even in the best performing local areas such as Gloucestershire, Thanet, Cornwall, Hastings, Bath, and the Isle of Wight, which have benefited from shifting housing preferences after the pandemic, house prices have only risen by 4-4.5% per year over nine years since 2016. That’s less than 1 percentage point above inflation and slower than even the worst performing parts of the South over the two decades prior.
Many of these areas are also popular holiday-home destinations, leaving second-home owners, including those letting holiday properties, exposed to the same threat of slowing house price growth as buy-to-let investors.
The analysis found that the golden age of property ownership was between 1995 and 2016, during which house prices in the South West, South East, and East of England rose by 7.2%, 7.7%, and 7.7% per year, on average,
By contrast, equities have continued to deliver returns well above inflation. A simple portfolio of 25% UK and 75% global stocks grew by 7.2% per year on average between 2016 and 2024.
“The idea that buying additional properties, whether second homes, holiday or buy to lets, is an effective strategy to save for later life is now questionable, to say the least,” said Alex Clay, Head of Rathbones’ office in Chichester.
“Our research highlights that the earlier boom in house prices was fuelled by factors which no longer hold. We now are seeing many people asking whether it’s time to sell holiday and buy to let properties. The huge decline in interest rates from their generational high in the early 1980s is unlikely to be repeated, and we’re working with clients to ensure that nostalgia for a bygone property market doesn’t blind them to the potential of more balanced, modern wealth-building strategies.”
Simon Foster, Investment Director at Rathbones, says: “Clients with holiday homes have faced an additional 100% council tax surcharge, rising mortgage and utility bills and, for those using a holiday letting company, higher costs as a result of the increase in the minimum wage. In the past, it was acceptable for holiday homes to simply break even, as owners benefited from the capital appreciation of the property. However, with higher running costs, a growing number of second homes failing to sell, and capital gains tax payable on disposal, the appeal of owning such properties for capital return has diminished.”
On a long-term view, looking back over more than a century across the UK, Rathbones found the average house price hovered around four times average annual earnings between 1910 and the late 1990s. However, after 2000 this more than doubled, with house prices rising to as much as eight times average earnings, leaving property much more expensive for the typical buyer.
In addition, after decades of low interest rates, global instability has fuelled inflation and pushed mortgage costs higher. Further, higher landlord costs from tax changes, stamp duty surcharges, and stricter regulations including the coming Renter’s Rights Bill have also reduced the appeal of buy-to-lets and second homes. Holiday homes in tourist hotspots have been particularly vulnerable, with rising borrowing costs and weaker capital gains undermining their long-term investment case.
Charlie Newsome, Divisional Director at Rathbones, says: “The increasing tax burden and more than 170 pieces of letting legislation and regulations now facing landlords have fundamentally changed the risk-reward balance of property investment.
“It’s no surprise that several clients of ours have decided to sell their buy-to-let or holiday home and use the proceeds in ways that better suit their long-term plans – including giving a gift for inheritance tax planning purposes.”
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