Where to find a bargain in the second home market

Four postcodes for ethical buyers who don't want to pay too much.

hould you buy a weekend retreat or a city pad? Second home ownership - excluding investment properties - has topped 250,000 for the first time according to the Office of the Deputy Prime Minister, but there is growing concern that such buyers are pricing local people out of the property market. And even leaving aside the ethics of second home ownership, is there a risk of being caught out by a housing market slowdown?

Estate agent Savills says second homes are usually bought as either a city apartment for those who don't want a gruelling daily commute into the office, a weekend retreat or a longer-term holiday home.

"Our research shows that second homes fall neatly into these three main categories," says Yolande Barnes, a director of Savills. "We also suspect official figures underestimate the true level of ownership, which may be as high as 350,000 homes."

Cornwall and London continue to be the most popular locations, although North Norfolk is catching up, according to figures from Savills. Dorset, Northumberland, Cumbria, West Sussex, Devon, Somerset and the Isle of Wight also feature on the list of areas where second home ownership is rising.

In many of these areas, house prices are rising much more quickly than the national average. By buying there you'll add to the problems faced by local people and you'll be more vulnerable to house price falls. Look slightly further afield, however, and your purchase may have less impact on the local market - plus you're more likely to find a bargain.

To help kick-start your search, Save & Spend consulted the experts at Propertyforecasts.co.uk who use more than 180 pieces of economic data to come up with price projections.

They have identified four postcode districts that are close to areas that are already popular with second home owners, but remain relatively undiscovered.

WALLASEY

Even though house prices have doubled in parts of this town over the last three years, there are plenty of reasons to be optimistic. Of most significance is its position - just across the water from Liverpool, where prices have also been on the up ever since the prospect emerged of it being named European City of Culture in 2008.

Pete Horner, of Bakewell & Horner estate agents, says Wallasey is benefiting from the fact that people can easily commute into Liverpool, as well as from a scheme to upgrade nearby New Brighton. He adds that in the CH44 postcode - where prices have been tipped to rise by Propertyforecasts.co.uk - two- and three-bedroom terraced properties can still be found for around £120,000.

"A few years ago you could buy them for around £60,000," Horner says. "However, they're still affordable for those people priced out of the city centre, as well as for investors."

NORTH NORFOLK

Estate agent John Marsh, who runs his own business in Holt, North Norfolk, has noticed a gradual migration into the country from the big cities. "People are moving away from these areas to find a better quality of life and this area has attractions such as golf courses and nice sandy beaches," he says.

"They like the fact people still say hello to each other in the streets, and the shops are very friendly."

In many cases people start off by owning a holiday home in the area and then make it their permanent residence when they retire. "This is an area of outstanding natural beauty and just a pleasant way of life," he adds. "You can get here in a couple of hours off the M25 and there's some relatively cheap property still available."

YORK

The beautiful city of York is strongly tipped to enjoy substantial price increases over the next five years. As well as a rich history, it also boasts superb road and rail links. London is only two hours away by train, while a trip to Leeds takes about 25 minutes.

Stuart Smith, manager of Link Up Properties, says: "We're already seeing price increases across York. People like the history of the place, the facilities and visiting the surrounding villages. There's also a good range of properties available which suit a variety of price targets."

SOUTH WALES

According to Chris Blight, of Crook & Blight estate agents, Newport is attracting people who want to be close to the countryside as well as being within easy commuting distance of the major cities. "Newport has always been the little sister to both Bristol and Cardiff," he says. "The fact that the Welsh capital is a natural centre for offices means people are happy to travel the 10 miles in from Newport as they see the distance as acceptable as an offset to the price rises in Cardiff."

Good - and improving - road and rail links are also positive factors, as well as the multi-million pound transformation - including road improvements, new and refurbished retail developments and extra homes - that locals believe will change the face of the city. "It's got a lot going for it," adds Blight. "There is the general ambience of the place - and it's cheaper to live in than the other two cities."

How to finance another property

* Unless you are in a position to buy the second home outright, you will have to decide on the best way to pay for it.

* Louise Cuming, head of mortgages at comparison site Moneysupermarket. com, says the most straightforward way to buy a second home is by re-mortgaging your existing property - as long as you've got enough equity stored up.

* "You will then be able to go shopping for your holiday home and act like a cash buyer," she explains.

* "The lender won't care about the second property, but it's still worth getting a proper survey carried out and a solicitor to check all the legalities."

* Alternatively, you can consider taking out a second mortgage, although any deal will be dependent on your ability to afford the outgoings.

* Also, setting up a new mortgage is likely to be more expensive because costs such as solicitor's fees will be higher. Plus, while most lenders are happy to lend against a holiday home as long as it's for personal use, only a handful - including Scarborough Building Society - advertise they will do so for holiday lets.

Surefire signs of a hot spot

* Is access being improved? Search for areas where new communication links, such as roads and railway lines, are planned.

* Have neighbouring areas flourished? Towns and cities located near those where prices have gone up sharply in the past can benefit from the knock-on effect of people looking for the next most affordable areas.

* Consider places that have been awarded Government funding for rejuvenation projects.

* The potential re-sale market is also important. For example, properties in areas which are popular holiday destinations will be easier to sell on.

* Do your research. Keep an eye on local newspapers to see what's happening and visit estate agents.