Property investors banking on second homes for long-term returns are facing a reality check, according to new research from Rathbones, one of the UK's leading wealth and asset management groups, which found that housing in second home hot-spots underperformed equities by six times in 2025.
The firm's annual 'Don't Bet the House' report compares residential property returns with typical stock market portfolios, and warns that homes, particularly second homes in popular hot-spots, can no longer be assumed to deliver reliable short or mid-term growth for investors.
House prices fell in 19 of the 25 second home hot-spots in 2025, areas with the highest density of second homes, compared with around a quarter (26%) of local authorities across the UK. By the first quarter of 2026, that figure had risen to 20 of 25. Over the same period, a simple investment mix of 25% UK equities and 75% international equities rose by 11.8% before dividends.
South Hams, the local authority in south Devon with the highest share of second homes in the 2021 census, recorded the sharpest fall. House prices there dropped 6.6% in the first quarter of 2026 compared with a year earlier. Other second-home hot-spots also saw significant declines over the same period:
- North Norfolk, down 3.3%
- Westmorland and Furness, down 3.0%
- Isle of Wight, down 4.2%
- Cornwall, down 2.4%
- Chichester, down 4.0%
- Cotswolds, down 0.7%
- North Devon, down 2.3%
The report points to several pressures weighing on property investment returns, including slower real income growth, higher mortgage costs, and a tougher tax and regulatory backdrop for landlords and second home owners.
"Property plays an important role in people's financial lives, not least because of the emotional importance many attach to homes and, for some, second properties," said Lloyd Gardner, financial planning director based in Rathbones' Exeter office. "But the latest data adds to evidence that UK residential property is no longer delivering the returns many have come to expect.
"That is particularly clear in second home hot-spots, where many areas have seen sharper real-terms falls. When house price growth trails inflation and equity markets, it challenges the assumption that property is the most dependable route to building wealth. We are seeing that reflected by some clients considering whether to sell investment properties."
Gardner added that investors planning for major life changes, including retirement, should take note. "For those planning for life's milestones, whether career changes or retirement, the message is clear: concentration carries risk. A well-diversified portfolio of financial assets may offer a more resilient way to build long-term wealth and stay ahead of inflation."
Adam Hoyes, senior asset allocation analyst at Rathbones and author of the research, said the findings point to a structural shift rather than a temporary dip.
"This updated report reinforces the original findings by showing that recent performance reflects a broader shift in the drivers of UK house prices, rather than short-term volatility," he explained. "The weakness in second home hot-spots is part of a poor run for UK house prices that goes back almost a decade.
"Modest nominal growth has not kept pace with inflation, while equities have delivered materially stronger returns. Many of the structural tailwinds that supported property in previous decades, including falling interest rates and strong real income growth, are no longer in place. That points to a more subdued long-term return profile for housing."
Across the UK, the average house price rose by 1.7% in the 12 months to December 2025, according to official transactions data, below inflation of 3.4%. House price growth also lagged the same simple investment mix of 25% UK and 75% international equities, which rose by 11.8% over the year, excluding dividends.
After inflation, the average UK home was worth less in 2025 than in 2016, a finding that underscores the risk for investors of relying too heavily on property alone to fund future plans.
Rathbones' first "Don't Bet the House" analysis identified a golden age of UK property investing, with returns exceeding other asset classes over the thirty years from the mid-1980s. Longer-term trends before and since have lacked the same policy and economic drivers, resulting in more sluggish growth for those banking on bricks and mortar.
