Rental Market Overheating

I was interested to read a report from LSL Property Services advising that the cost of renting a home in England and Wales hit another new high in October.  It indicated that typical rent stood at £744 a month in October – up 0.4% on September.  The charity Shelter commented on the report advising that this is yet more proof that life is becoming more difficult for renters and the increase in cost is piling on the pressure for hard pressed families.

My understanding is that the Scottish market will report similar trends mainly caused by first time buyers being unable to get on the housing market.  Whilst I am noticing an increase in activity from property investors I do feel that demand for rental properties is outstripping supply.  This is further evidence that both UK and Scottish Governments need to come up with a coherent strategy to assist first time buyers’ step on the property ladder.   This will take some of the heat out of the rental market, stabilise the housing market increasing confidence with both banks and large developers.  A policy to help the first time buyer would also go a long way to stabilising the economic conditions.

 

Lindsay Darroch
Partner and Head of Property

Home Reports – The Final Nail in the Coffin?

As readers of previous blogs will know I have been a vociferous opponent of the Home Report since the concept was first mooted many years ago.  I see it as an unnecessary cost and burden on the hard pressed seller and all the evidence that I have gathered shows that it is putting the brakes on the housing market.  One of the reasons behind the introduction of the Home Report was supposedly to reduce the number of surveys that were carried out on a property – this has proved to be nonsensical given the 12 week shelf-life of a Home Report and also the fact that many lenders are not accepting the Home Report or a refresh.  It would appear that now some lenders are in fact instructing their own surveyors to carry out a scheme 1 survey to check the original surveyor’s valuation of the property.

This means that there could be as many as three surveys being done at a considerable cost which will inevitably be passed on to the consumer.   The other interesting thing happening is that when the lenders’ surveyors are carrying out their survey for mortgage purposes they are simply valuing the property at the price the purchaser is paying.  Not only should the extra costs be considered, but the other consequence of the Home Report system is a constant downward spiral in house prices.

I would urge the Scottish Government to scrap the Home Report system now.

Lindsay Darroch
Partner & Head of Property

First Time Buyer Report

I was interested to see Right Moves First Time Buyer forecast for the final quarter of 2012.  The report indicated that more than a third (36%) of prospective first time buyers state that finding the deposit is their main concern.  4 out of 5 first time buyers expect to have a deposit of 10% or more showing a growing acceptance of the deposit rules that have become the new norm.  Following on from my previous blogs it would be interesting to know how long it takes a first time buyer to raise this kind of deposit.  On a more positive note Right Moves forecast predicts that 25% of those who intend to purchase in 2013 will be doing so for the first time.  While this is well short of the 40% minimal required for a free moving housing market,  I still think this is an increase and a positive step for the housing market as a whole.

I will continue to report on trends.

Lindsay Darroch
Partner & Head of Property

The Lost Generation

I had an interesting discussion with someone who was talking about his niece who is currently renting a one bedroom flat in Dundee and paying close to £500 a month for the unfurnished flat in a not so salubrious part of town.

The value of the property is around £50,000 and if she had been able to buy it, her mortgage payments would be considerably less than the rent she is currently paying.  He said that she can’t see how she will ever be able to step onto the property ladder as the amount she is paying in rent prevents her from saving for the required deposit to make the move – even though she knows that a mortgage would be considerably less than her monthly rental cost.

In discussion with another person we were mulling over the fact that there is now a generation being bombarded with negative headlines regarding falling property prices and are therefore not so inclined to buy a property.  As I have mentioned in previous blogs first time buyers are the life blood of any housing market and, even now, the housing market is still the bedrock of the UK consumer economy.

For the housing market to be free flowing the number of first time buyers needs to be over 40% and my latest indicators show that this figure is less than 15% (although I have yet to have this officially confirmed).  Without first time buyers joining the market at the start of the housing chain there is no free flowing equity which can be used by buyers further up the chain to fund their deposits to enable them to buy higher value properties and so on.   There is also not the replacement of capital that drops off at the other end either when people sell up because of death or other reasons.  Both UK and Scottish Governments need to take urgent action to assist the first time buyer.  Readers of previous blogs will know my first time buyer proposals which will have minimal cost and could be funded by the introduction of some form of first time buyer payment – very similar to the old mortgage indemnity guarantee premium.  The first time buyer has to find a deposit of 5%, the government will guarantee a further 5% and the lender will lend 95% in reality risking only 90%.  In one simply move there could be an injection of activity into the housing market that would benefit the whole economy.

I will continue to campaign on behalf of the first time buyers.

Lindsay Darroch
Partner and Head of Property

P.S. Interested to see a recent report by Connells Surveyors indicating that their records show an increase in October in the number of first time buyers entering the market – Green shoots?