Late last week, Leeds Building Society announced that it would no longer lend on second homes to concentrate on first-time buyers instead, the latest controversy in a long-running battle revolving around second home ownership.
Now Scottish property firm DJ Alexander, part of the Lomond Group, has claimed this move exceeds the building society’s role as a lender.
The company said that lenders intervening directly in the operation of the housing market for social, moral, or societal reasons was not their remit, and ‘they should be extremely cautious about such interventions’.
DJ Alexander says that the society’s stated reason for no longer lending on second homes – that they are one of the causes of housing shortages in the UK – ‘is, at best, disingenuous and, at worst, inaccurate’.
The firm points to this year’s Westminster report – ‘Second homes and holiday lets in rural communities’ – which found inconclusive evidence on the negative impact of second homes.
While the report states that second homes may increase prices and reduce availability, there is also evidence that they increase the economic prosperity of rural areas and benefit other homeowners in the vicinity. DJ Alexander says a similar report commissioned by the Welsh Government came to the same conclusion.
“The Leeds Building Society have made a bold statement by refusing to lend to second home buyers, but you would have to question whether it is their role to intervene in the housing market in this way,” David Alexander, CEO of DJ Alexander Scotland, said.
“The notion that not lending to second homeowners will allow more people to join the housing market does not really make sense unless they hope that prices will fall as a result of their intervention.”
Alexander said this is extremely unlikely as the popular tourist destinations where this is a major issue are unlikely to be impacted by this change in policy.
“They will remain popular as long as people want to live there, and they will find other companies willing to lend to facilitate this,” he claimed. “St. Ives, which has a restriction on second homeowners, has seen prices increase by 26% since the policy was introduced in 2016. Indeed, both the Westminster and Welsh reports found that interventions rarely produced a tangible difference.”
Alexander continued: “But you have to ask where does this end? Will banks refuse to lend for car purchases or holidays because of the impact of these purchases on the climate? Or should they not fund smokers and those with an unhealthy lifestyle who will ultimate produce greater strain on the NHS? These are not decisions for financial institutions and will make no difference to the market.”
He said that, at the heart of this issue, is supply and demand. “Supply has not kept up with demand, so prices have risen, and affordability has become more difficult. Increase the supply of housing in popular areas and you will soon see prices level off and even reduce making more homes affordable to a wider range of people.”
He concluded: “Intervening in the market always has unforeseen consequences and should not be the function of lenders but left to policymakers.”