Over the last few days I have been asked for my opinion on how I see the property market moving in the next 6 to 12 months. I thought it would be interesting to put these thoughts in to my blog, although I do highlight that these are generalisations and even within Scotland there are a number of geographical differences to consider, east to west, Aberdeen etc.
Before we look to the future we need to look back over 2013. I think in general terms the market activity i.e. number of properties bought and sold, has increased by about 20% to 25% . Although we have seen an increase in the number of closing dates, prices have stabilised not increased. Sellers are now more realistic about their price expectations and this has contributed to improving the Scottish housing market. This realism has been driven by an appreciation that if they are moving up in the property market the price paid or received is not as important as the cost of change.
We have seen an increase in the number of first time buyers, although this figure is still well below historic levels and below levels required to have a free-flowing property market. In relation to mortgage funding, whilst more mortgage funds are available (I will do a blog about this shortly), the vast majority are at a 90% loan to value level. Looking at the pattern of the property market I would say that the increased activity has been focused on the middle band which has been very happily trading amongst itself – downsizers trading with upsizers. Some big national developers are starting to come back into the market and actively push their properties however the small to medium developers are still finding it difficult to find funding and because of this there is still a shortage of new properties coming into the market. I have not seen any significant pick up in the number of second hand properties – perhaps 1% or 2% – compare this to the sales increase of 20% to 25% and bearing in mind that the volume of properties in the market is probably still at half the number of 2007, there is a real danger of the market trading itself out of stock.
So what of the future? I believe the help to buy scheme part 2, which will launch in January 2014, will be more important than ever; allowing first time buyers to get onto the property ladder and increase the number of purchasers able to make the second step from their first property to the next level.
This will increase confidence, further improve the economy and encourage more people to put their properties on the market with a view to moving up the ladder. I would hope that price stabilisation will give the banks confidence to start lending to developers and we will see an increase in the number of new properties being built – a supply of new properties will keep the property market moving and increase activity levels. There has been recent criticism of the governments housing policy with some dire warnings of a property bubble being created and whilst I can see the dangers, I think that the strategy is correct subject to central government introducing mechanisms to control prices. This is more apparent down in the south of England but I think readers of previous blogs will know that I think there is a real requirement for government to introduce capital gains tax rules in relation to property and also for the Governor of the Bank of England to monitor the housing market – blog to follow.
To summarise – I think we will continue to see an improving housing market with activity levels rising. From the summer of 2014 I would expect to see a rise in property prices as the number of first time buyers increases. The consequence of this will be a greater willingness from lenders to fund developers which will have a positive impact not only in the housing market but on the economy as a whole.
We will start seeing sustained recovery by Summer 2015.
As we have seen over the last few years anything can happen and I will continue to report on trends.Lindsay Darroch Partner – Head of Property