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New holiday let rules risk leaving thousands of homes unmortgageable

Caernarfon, Gwynedd
Caernarfon, Gwynedd. Residents in the Welsh county have campaigned against so-called Article 4 Direction - Sebastian Wasek / Alamy Stock Photo

Michael Gove’s new holiday let rules could render thousands of homes in holiday hotspots unmortgageable, an independent report has warned.

The Levelling Up Secretary is primed to give councils across England new powers this summer to carve out locations where homeowners cannot turn their properties into holiday lets without planning permission.

In Wales, councils already have similar powers – known as an ‘Article 4 Direction’ – but the policy extends to second homeownership as well as holiday lets. Residents of Gwynedd have spent the past year campaigning against their council’s efforts to introduce an Article 4 Direction.

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Gwynedd Council is due to vote on it next month, with a view to introduce the new rule in September.

An independent report, which cost residents a collective £25,000 to commission, found that mortgage lenders would either not lend on properties in restricted use areas at all, or only lend if buyers could stump up much larger deposits to shield them from falling prices.

Lenders consulted for the report, seen by the Telegraph, included Santander, HSBC, Foundation, Virgin and Halifax. Banking trade body UK Finance was also consulted.

The report said: “Lenders do not favour restrictions on the sale of a property, as this is likely to lead to a reduction in the market value and will also impact the timescales of a sale.”

Estate agents were also quoted saying a main residence in a restricted area could fall in price by as much as 25pc from 2023 levels. But second homes, the report said, “would likely increase in value as the supply will be limited”.

Councillor Dafydd Meurig said earlier this month that “the significant number” of houses in Gwynedd being used as second homes and short-term holiday accommodation was having “a substantial impact” on people accessing homes in their communities. He added: “All responses have received careful consideration.”

The Telegraph understands that lenders are worried planning restrictions could unintentionally create a “two-tier market” with a premium on properties that are already used as second homes and holiday lets.

They are also concerned that valuations of residential properties might be suppressed after the introduction of an Article 4 Direction.

A more effective solution, lenders have argued, would be to increase the supply of new affordable housing.

One resident in Gwynedd, on the condition of anonymity, told the Telegraph the mortgageability of properties in restricted areas was “the most concerning element” of the report and the ramifications it has for their local economy.

Mr Gove has argued that local people are being “pushed out of cherished towns, cities and villages by huge numbers of short-term lets”.

His decision to introduce planning permission powers for English councils follows a sweep of tax squeezes on second homeowners by the Government, including a cut to the Capital Gains Tax allowance.

While the rules are set to be introduced nationwide, it is at the discretion of local authorities whether or not they wish to use the planning controls.

Mortgage lenders confirmed that no formal policies have yet been put in place for restricted use areas.

Joe Stallard, a holiday let broker, said any rules that come with restrictions need to be thought through “very carefully”.

He added: “They can come with a lot of unintended consequences, because they make properties harder to sell as they suddenly become harder to finance.

“The rules [requiring planning permission] could trap people, too. What if someone inherits a home? Do they suddenly need planning permission?

Mr Stallard added: “Not all holidays are bad, they bring in a lot of money – so any sort of blanket ban does seem short-sighted.”

The Department for Levelling Up said: “We want to make the best use of existing housing by keeping homes for people to buy or rent. That’s why we are responding to calls from local communities and their MPs to provide greater control in areas where there is a high number of short-term lets.”