6th September 2026
Highland Council has been given a powerful new weapon in its attempt to tackle the shortage of housing.
It can now make owning a second home considerably more expensive.
The question is whether that will actually make houses cheaper.
That may sound like a strange question. If owning a second home becomes more expensive, surely some owners will sell, more properties will come onto the market and prices should eventually fall.
Perhaps.
But housing markets rarely work quite that simply.
And with Highland now imposing some of the highest council-tax charges on second homes in Scotland, we may be about to see a rather interesting experiment in what happens when government deliberately increases the cost of owning property.
The outcome could be particularly important for rural communities such as those across Caithness.
The tax has become very substantial
The rules changed significantly this year.
Previously, Scottish councils could impose a council-tax premium of up to 100% on second homes. From April 2026, that national cap was removed, giving councils much greater freedom to decide what they charge. The Scottish Government says councils can increase, reduce or remove the premium according to local circumstances.
Highland Council has chosen to make particularly strong use of that power.
From 1 April 2026, second homes in Highland face a 300% council-tax charge, meaning the total council-tax liability is three times the standard bill. The council's medium-term financial plan identifies 3,369 second homes and 2,466 long-term empty properties, together representing about 4.6% of the council-tax base.
That is a substantial number of properties.
And it means the financial calculation facing somebody considering buying a Highland second home has changed considerably.
The council's own figures illustrate the scale. In 2025-26, a Band D second home had a council-tax and water-services bill of £3,654.57 under the then-existing arrangements.
The new arrangements make the ownership cost considerably more significant, particularly once the other costs of owning a property are taken into account.
Mortgage interest, insurance, maintenance, heating, repairs, travel and now a much larger council-tax bill all have to be paid.
For some potential buyers, that calculation may simply no longer work.
But will they sell?
This is where things become interesting.
There are several possible reactions to a much higher tax bill.
An owner might sell.
They might decide to rent the property permanently.
They might turn it into a qualifying holiday-let business if the circumstances allow.
They might use it more frequently so that it is no longer treated as a second home under the relevant rules.
Or they might simply pay the tax.
That last option should not be underestimated.
Someone who has owned a Highland holiday property for 20 years, has no mortgage and has seen its value increase substantially may regard an additional few thousand pounds a year as irritating rather than decisive.
The tax therefore won't affect every owner in the same way.
A retired couple who bought a cottage decades ago may make a very different decision from somebody who has just borrowed heavily to buy a holiday property as an investment.
And that distinction could eventually become visible in the housing market.
The crucial question is what happens to the next buyer
Suppose a property is worth £300,000.
The owner decides that paying a much higher council-tax bill every year isn't worthwhile and puts it on the market.
If there are plenty of buyers willing to pay £300,000, nothing much has happened to the property market.
The property has changed hands.
But if potential buyers now calculate that the additional annual cost makes the investment unattractive, they may offer £280,000 instead.
The seller might accept.
If enough sellers and buyers behave this way, prices can begin to adjust.
That is how taxation can affect property values without anybody explicitly deciding that house prices should fall.
The annual tax becomes capitalised into the price people are prepared to pay.
A house that costs £4,000 a year more to own is simply worth less to a rational buyer than an otherwise identical house that doesn't carry that cost.
But how much less is a much more difficult question.
We are beginning to see evidence elsewhere
There is now some useful evidence from England.
In areas with large second-home markets, higher council-tax premiums have coincided with more second homes being put up for sale, longer selling times and, in some places, significant reductions in asking prices.
Recent reporting from the South Hams in Devon, for example, found that some second-home owners had cut asking prices dramatically after struggling to sell. The article reported that house prices in some second-home hotspots had fallen by more than 6%.
That is certainly interesting.
But it would be wrong to claim that the council-tax surcharge alone caused those falls.
The property market has also been affected by higher mortgage rates, the end of the pandemic-driven rush for rural properties, changes to holiday-let taxation and a more cautious economy.
This is an important distinction.
Evidence of falling prices after a tax increase isn't automatically evidence that the tax caused the entire fall.
Nevertheless, the direction of travel is worth watching.
Scotland is already showing some behavioural change
There is stronger evidence that taxation can affect whether properties are classified as second homes.
Scottish Government statistics show that the number of second homes fell by 10% between 2023 and 2024, the largest annual fall in a decade.
The Scottish Government says the decline is likely to be at least partly related to the introduction of the 100% council-tax premium in April 2024.
The number then fell by another 3% between 2024 and 2025.
That is significant.
It suggests owners are responding to the tax.
But again, there is an important difference between reducing the number of properties classified as second homes and reducing house prices.
A property can cease being classified as a second home without being sold.
It might become a permanent home.
It might become a qualifying holiday let.
It might be occupied more frequently.
Or it might change hands.
So the falling number of second homes is evidence of behavioural change, but it isn't yet proof that the policy is reducing the underlying value of rural houses.
And Highland property is not all the same
This may be particularly important for Caithness.
A £700,000 holiday property in a spectacular Highland location aimed at wealthy buyers from Edinburgh, Glasgow or England is not the same market as a £150,000 or £200,000 house in Wick or Thurso.
The wealthy buyer may simply absorb the additional council tax.
The buyer looking for a modest second home may not.
That means the effect of the tax could vary enormously from one part of Highland to another.
The Scottish Government itself recognises this.
Its guidance tells councils considering premiums to examine their potential effects on property values, local economies, tourism, affordable housing demand, public services and local communities.
That is a surprisingly important admission.
It means the Government recognises that increasing the tax can have consequences beyond simply raising revenue or encouraging owners to sell.
There is another complication: falling prices don't automatically mean affordable houses
This is perhaps the biggest misconception in the debate.
Imagine second-home taxation causes a 5% fall in prices in a rural community.
That sounds good for local residents.
But if houses were previously unaffordable by 30% or 40%, a 5% reduction hasn't solved the problem.
There is also no guarantee that the homes being sold will be bought by local families.
A property released by a second-home owner might simply be bought by another person from outside the area.
The market doesn't automatically distinguish between a local buyer and somebody moving from Edinburgh, Glasgow, London or elsewhere.
Indeed, recent experience in other rural and coastal areas suggests that even when second-home markets weaken, local people can continue to struggle to afford property.
That is why taxation alone is unlikely to solve Highland's housing problem.
More houses need to be built.
More affordable housing needs to become available.
Existing empty properties need to be brought back into use.
And communities need enough employment and services to support permanent populations.
Yet the tax could still have an effect
None of this means the policy won't work.
It may work gradually.
A person considering buying a second home today will know that the running costs are considerably higher than they were a few years ago.
They may therefore offer less.
Another prospective buyer may decide not to purchase at all.
An existing owner may eventually decide to sell.
If enough people make those calculations, the demand for second homes could weaken.
And when demand weakens while supply increases, prices normally come under pressure.
The question is how large that effect will be.
The wider property market is already changing
It is also worth remembering that the second-home tax is arriving at a time when the housing market has other problems to contend with.
Mortgage rates have been volatile.
Households are under pressure from the cost of living.
Economic uncertainty remains high.
Recent market data show that Scotland's average house price was £195,000 in June 2026, up 2.3% over the previous year, although prices fell 0.5% compared with May.
So there is no evidence of a Scottish housing-market collapse.
But other data suggest buyers are becoming more cautious. Zoopla reported in August that half of homes across Great Britain were taking longer to sell than a year earlier, with mortgage-market volatility one factor.
That creates an interesting situation.
The second-home tax is trying to reduce demand from one particular group of buyers at precisely the time when the wider market is already becoming more sensitive to affordability.
The combined effect could be greater than either factor alone.
Could Highland actually push prices down?
Yes.
But I would be cautious about predicting a dramatic fall.
The more likely outcome is that the tax gradually changes the economics of second-home ownership.
Some properties will be sold.
Some will become permanent homes.
Some will be converted into other forms of accommodation.
Some owners will simply pay the bill.
And some potential buyers will quietly decide that a Highland second home isn't worth the money.
Over time, that could reduce demand and put downward pressure on prices in areas where second-home ownership is particularly important.
But it won't necessarily happen everywhere.
And it certainly won't happen overnight.
There is one fascinating possibility
The policy could eventually create a divide within the Highland housing market.
The most desirable properties in the most spectacular locations may remain expensive because wealthy buyers can afford the additional tax.
Less desirable properties, or properties in communities with weaker second-home demand, could become much more sensitive to the additional annual cost.
In other words, the tax might not bring down Highland house prices generally.
It could instead change the relationship between different parts of the Highland property market.
That could be particularly significant for Caithness.
If a second-home buyer is choosing between a £300,000 cottage in a famous tourist hotspot and a £180,000 property in Caithness, the additional annual tax could become part of the calculation.
But Caithness also has another advantage.
It remains relatively affordable compared with some of the best-known Highland second-home markets.
That could mean the area continues to attract buyers even if the tax reduces demand elsewhere.
We may be watching a very unusual experiment
Highland Council is effectively testing whether a large increase in the cost of owning a particular type of property can change the behaviour of property owners and ultimately improve housing availability.
It may work.
It may work only partially.
Or it may produce some consequences nobody has yet anticipated.
And we should not expect the answer to appear in the next set of house-price statistics.
It could take several years.
What we can already say is that Scotland's previous increase in second-home taxation appears to have changed behaviour, with the number of properties classified as second homes falling significantly.
What we don't yet know is how much of that change represents genuine additional housing for local people, how much represents reclassification and how much has actually affected prices.
That is the part worth watching.
The question for Caithness
For people living in Caithness, there is a particularly interesting question.
Will higher taxes make it harder for people to buy a second home here?
Probably, at least at the margin.
Will it make existing second homes cheaper?
Possibly.
Will that make houses affordable for local families?
Not necessarily.
And could it damage some businesses that depend upon visitors and second-home owners?
That is also possible.
The policy therefore deserves something more sophisticated than either celebration or condemnation.
If it succeeds, we should see more properties becoming permanent homes, greater housing availability and eventually some moderation in prices.
If it doesn't, we may simply have succeeded in making second-home ownership more expensive while leaving house prices largely untouched.
And there is a final possibility.
The tax could reduce prices in some communities but not others, changing where people choose to buy rather than whether they buy.
That is why the next few years will be fascinating.
Highland Council has changed the economics of owning a second home. The housing market will now tell us just how powerful that change really is.
And for Caithness, the question is not simply whether house prices fall.
It is whether the houses that become available will actually become homes for the people who live here.
And Then There Are Interest Rates
There is another factor that could prove just as important as the council-tax increase, and that is the cost of borrowing.
For someone buying a second home with cash, higher interest rates may be little more than an inconvenience. But for someone borrowing a substantial part of the purchase price, the calculation can be very different. The Bank of England's Bank Rate is currently 3.75%, while average mortgage rates remain considerably higher. The average two-year fixed residential mortgage is around 5.5%, while buy-to-let borrowing is typically more expensive again.
Consider someone buying a £300,000 second home with a £150,000 mortgage. At 4% interest, the interest cost alone would be about £6,000 a year. At 5%, it becomes £7,500, and at 6% it reaches £9,000. That is before council tax, insurance, repairs, maintenance, electricity, heating and the cost of travelling to the property.
For a family buying its main home, there may be little choice but to accept the cost of borrowing. A second home is different. It is, by definition, discretionary. If the numbers stop making sense, the potential buyer can simply walk away.
That is why higher interest rates could have a disproportionate effect on the second-home market. They do not necessarily have to cause a dramatic fall in house prices. They can first reduce the number of people prepared to buy.
And this is where the council-tax increase becomes particularly interesting. A prospective second-home owner could now be looking at several thousand pounds a year in additional council tax while also facing mortgage costs that are considerably higher than they were when borrowing was exceptionally cheap.
The two pressures reinforce each other.
The effect could also work through the price a buyer is prepared to offer. If a property costs £300,000 but the combination of mortgage interest, council tax and running costs makes it considerably less attractive than before, the buyer may decide that £300,000 is simply too much. Perhaps £275,000 or £280,000 makes the calculation work.
The seller, of course, does not have to accept that offer. But if several potential buyers reach the same conclusion, the market can gradually change. Properties can take longer to sell, sellers can become more willing to negotiate and eventually asking prices can begin to adjust.
There are already signs that the wider mortgage market is becoming more difficult. UK mortgage approvals fell to 56,053 in July 2026, their lowest level since January 2024, while financial markets have been pricing in the possibility of another Bank Rate increase before the end of the year.
The important point is that interest rates do not have to rise dramatically to affect the second-home market. A relatively small increase can make a difference when it is added to all the other costs of ownership.
There is also a timing issue. Many borrowers are protected temporarily by fixed-rate mortgages, but when those deals expire they have to refinance at whatever rates are available at the time. Some homeowners who borrowed at exceptionally low rates are already discovering how different the numbers can look when they come to remortgage.
For a second-home owner, that could be the moment when the decision is made.
Keep the property and accept substantially higher costs, try to generate more income from it, convert it into a qualifying letting arrangement, or sell.
That means the real story may not be simply whether Highland's second-home tax brings house prices down. It may be what happens when higher council tax meets more expensive mortgages.
One pressure reduces the attraction of owning the property. The other increases the cost of financing it.
And if both continue for long enough, the question changes from "Can I afford to buy a second home?" to "Is owning one still worth it?"
That could ultimately prove much more powerful than the tax increase on its own.