Posh hotspots suffer Britain's biggest house price falls
Truro, Torquay and Exeter saw a spike of interest in the pandemic as Londoners looked westwards during the race for space.
But the market is 'unwinding' thanks to a cocktail of price growth correction, increased stamp duty rates, higher mortgage rates and the second homes premium.
The average house prices in Truro, Torquay and Exeter have fallen by up to 1.3pc in the past six months – second only to postcodes in West and Central London, according to Zoopla.
Torquay's price fall comes after it dropped 1.1pc in the second half of last year.
Harry Goodliffe, of mortgage brokerage HTG Mortgages, said: 'House prices in parts of the South West rocketed during the pandemic as buyers scrambled for space and lifestyle, but that kind of demand was never going to be sustainable.
'Now, reality is kicking in and some of those inflated values are adjusting. As the market cools and people weigh up hybrid working more realistically, demand has softened. It's not a crash, it's more of a reset.'
The downward pressure on house prices in the South West has been caused by the introduction of the doubled council tax premium for second home owners.
A host of councils in the region brought in the penalty this April after being granted powers by the previous Conservative government.
A Zoopla spokesman said: 'The South West has always been popular as a location for second homes and investing in holiday rentals, as well as a place to live.
'Market conditions changed, largely on the back of tax changes for investors and double council tax for second home owners which has grown the number of homes for sale boosting buyer choice with prices posting modest price falls.'
Telegraph analysis shows the average second home council tax bill has risen to £4,297 since April. Those in Torquay now face an average charge of £4,530, while a typical second home owner in Truro is paying a heftier £4,749.
Pete Mugleston, of OnlineMortgageAdvisor, said: 'The South West housing market is now unwinding some of the extreme price growth driven by pandemic-era incentives.
'Low interest rates and the stamp duty holiday made second homes, Airbnb investing and upsizing incredibly attractive during 2020 to 2021.
'But today, mortgage costs are much higher and stamp duty rates have increased, particularly for additional properties. We're seeing a correction in places like Truro and Torquay, where the pandemic boom was sharpest, likely due to dampened second home and investor-driven demand.'
Separate findings from Zoopla show that buyer demand is up 11pc, and agreed sales up 8pc year-on-year.
The marketplace said the data shows the market is 'defying the typical summer slowdown'. The average UK house price now stands at £268,400, a modest £3,350 increase from this time last year.
Richard Donnell, executive director of Zoopla, said: 'The housing market is broadly in balance. We're seeing healthy levels of demand and sales.
'More homes for sale, particularly across southern England, is reinforcing a buyer's market, keeping price rises in check.'
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