Pizza or Steak?

The title of this blog refers to a question that is now actually being asked to prospective mortgage applicants in the lender’s quest to ascertain whether the applicant can afford the mortgage and meet the new mortgage requirements.  Whilst I applaud the intent of the new affordability system, the unforeseen consequences are an immediate disaster in relation to clients trying to finalise their house purchases, which in most cases, would have been proceeding smoothly until the lender revisited the mortgage affordability requirements.  In the medium term it is causing a huge brake on the Scottish property market and is putting an awful lot of extra pressure on purchasers and solicitors alike with no purchaser now being prepared to commit to conclude missives until their solicitor actually holds loan papers in his hands.  This is a significant change in the Scottish house buying and selling process. Previously, certainty was achieved by an orderly progression towards concluding the missives, usually some time prior to the date of entry. This allowed the purchaser and seller peace of mind and allowed the seller, looking to buy, time to move on his purchase.  This is definitely increasing my feeling that we are in for a summer of uncertainty in relation to the housing market.

I am also concerned with the recent murmurings from the Governor of the Bank of England expressing his concerns regarding an overheating housing market.  Whilst I agree that there are clear signs of overheating in the southeast of the UK in general and London in particular, I was interested to hear from The Royal Bank of Scotland, who indicated that the vast majority of purchases in London either have very small loan to value mortgages, if any mortgages at all.  Therefore the overheating that is taking place in London causes little or no threat to the UK mortgage banks.

I am concerned that a mallet will be used to crack a nut and the green shoots of improvement that we are seeing in the Scottish housing market will be killed off before they really take root.  Whilst I am still of the opinion that the property market is moving in the right direction I am concerned that we are in for six months of uncertainty.

I will keep you advised of trends.

Lindsay Darroch
Partner – Head of Property

Prices Rise as Supplies Slow

Following my recent property market review, I was very interested to read a report from the Royal Institution of Chartered Surveyors who advised that house prices remain on a firmly upward trend but with the number of homes coming on to the market falling for the 4th month in a row in April.

The RICS survey showed that on average surveyors expect the average price growth of 6% a year over the coming 5 years.  In the short term at least, this was the result of the imbalance between the supply of homes and demand.    I will continue to keep you advised of trends.

Lindsay Darroch
Partner – Head of Property 

Mortgage Market Review

I was interested to read a report from Esurv Chartered Surveyors advising that in their opinion MMR Regulations have temporarily slowed lending with 13,000 fewer home loans in April than in January and house purchase approvals dropping 6%.

Whilst I am of the view that MMR has had an impact I think that the slowdown in the amount of supply coming on the market has also had an impact, if perhaps a larger impact, on the number of transactions.  I will keep you advised of trends.

Lindsay Darroch
Partner – Head of Property 

OECD Calls for Regulation of UK Housing Market

I was disappointed to read the recent calls from the OECD (Organisation for Economic Co-operation and Development) regarding the UK housing market, and in particular their concerns regarding a property bubble.

Unfortunately the stats point very much towards a bubble in London and the south east of England but this heat is not really spreading throughout the rest of the UK to the same extent.  I think it would be dangerous for the Government or the Bank of England to restrict mortgage lending at this stage, especially with the recent introduction of the new mortgage market review rules.  Having considered matters, and remembering a time when in a bid to stimulate the housing market, the Government gave relief from Stamp Duty to certain postcode areas, I would suggest that the Government brings in a premium rate of Stamp Duty for certain postcode areas on a temporary basis, and this measure could be used to control the housing market.  Any area would be reviewed on a three monthly basis and the Bank of England could use statistics from the Registers of Scotland and mortgage lenders to dictate which areas are controlled in this manner.  I would also suggest that any extra funds are ring-fenced and used to support the property market, especially in more deprived areas.

I think this proposal would be the best way to control a housing market that is over-heating in certain areas but lagging behind in others.

Lindsay Darroch
Partner  – Head of Property    

Is the Referendum Having an Impact on the Property Market?

Previously when I have been asked this question I have had to answer in the negative in that I have not been aware of any impact on the property market. I have now come across a number of examples of potential property investors, both large and small, who are holding back investing in Scottish property dues to the uncertainty of the Referendum.   The main concern appears to be what impact there will be on bank lending should people vote in favour of independence.  It is thought that this will cause the banks to reduce the amount of funds they are prepared to lend in the Scottish property market – never mind the question of what currency will be in use – and this will have a damaging impact on house prices in general.  This is the first time I have been aware of this sentiment and it may curtail the surge of buy to let property investors that I have been expecting.  I will monitor trends and report back.

Lindsay Darroch
Partner – Head of Property

Up Wi’ the Bonnets

I spent a very enjoyable, if somewhat nerve-shredding afternoon at Dens Park on Saturday to see Dundee Football Club clinch the Scottish Championship.  No matter what your football persuasion, it is great to see both Dundee clubs in the top flight of Scottish football. Next season the city will be the hub of major derbies with both clubs welcoming Aberdeen; Tayside rivals St.Johnstone and of course each other in the return of the Dundee Derby. This is good for both clubs and raises the awareness and publicity levels of the city as whole, encouraging more visitors.

I would like to congratulate Paul Hartley and his team and wish everyone at Dens Park all the best for next season.

Lindsay Darroch
Partner – Head of Property

Rent Pledge

I was interested to hear the Labour Party’s policy on private sector rentals and thereafter the Association of Residential Letting Agents’ response.  ARLA are very much against the rent pledge, fearing that it will ultimately lead to increase in rents and reduce the quality of properties across the UK.  I have to say that I do agree with them and history would tend to show that policies such as the rent pledge will only lead to a significant lack of investment in existing properties reducing their quality and ultimately leading to increased rents.

I would prefer to see the following:-

1.         Wholesale regulation of property management firms.

2.         Licensing requirements for all rental properties meaning that all properties for rent require to be of a certain standard – fire safety etc (based on current HMO Regulations).

3.         More support and incentives for the building of new homes and the improvement of existing properties.

 Lindsay Darroch
Partner – Head of Property 

Come Walk With Me

alliance-trust-cateran-yompI am delighted to be once again taking part in the Alliance Trust Cateran Yomp 2014.  The Yomp is an epic adventure challenge and I have set myself the target of going for silver which is 36.5 miles.  The Yomp is to raise funds to support ABF, the Soldiers Charity and the Alliance Trust Staff Foundation.

If you would like to make a donation my just giving a page is undernoted and any donation would be warmly welcomed.

Lindsay Darroch
Partner – Head of Property

The End of Right to Buy

I was interested to read a report by the Scottish Federation of Housing Associations calling on the Scottish Parliament to endorse reduced right to buy notice period from 3 years to 1.  The Scottish Government proposes to end the right to buy policy which was introduced in the 1980s.  Andy Young of the SFHA stated:

“Right to buy has had its day and has no place in 21st century Scotland.  It has been beneficial to a relatively small number of individuals but clearly a loss to the greater public good.  Half a million social rented houses have been lost in the 30 years of this policy in Scotland, very often the better stock in the more popular areas.” 

This got me to think about the nature of house buying in the UK in general and Scotland in particular.  What makes people move house?  What makes people spend money on their property, carrying out superficial and decorative improvements?   In my opinion house ownership is aspirational and quite often aside from changes ineconomic or personal circumstances, people move houses for aspirational reasons – they are doing well and they want a slightly bigger, better, more expensive property.  This is where I do disagree with the Scottish Government and the Scottish Federation of Housing Associations.  I agree that the basic flaw with the right to buy policy is that there was not a sustained mechanism to assist Local Authorities and Housing Associations to carry on building new properties to fulfil the housing requirements of the population.  I am strongly of the opinion that there is a huge benefit to society in improving the conditions that people live in and it is something that should be the focus of all governments, however, I am of the opinion that given the aspirational nature of home ownership in this country it is a mistake to end right to buy.

My proposals would be: 

1.         That either the Scottish or UK Government changes the rules in relation to Capital Gains Tax meaning that if you sell a property within a certain period of time, be it your sole or main residence and you make a gain, then there is a liability for Capital Gains Tax.

2.         I would also tweak the Stamp Duty Rules – perhaps not to the extent that is being proposed by the Scottish Government but certainly to increase the amount of money raised from this very efficient tax (I do not agree with the Mansion Tax which I am very much of the view is anti-aspiration and could be highly damaging to the economy as a whole.

The money raised from the above two methods would be ring fenced and used to fund housing associations in relation to the building of new social housing.  The housing associations would require to retain any new build properties for a minimum of 5 years and thereafter the tenants would be entitled to purchase the property under right to buy legislation but perhaps for a smaller discount than previously given.  Housing associations would be rewarded by an increased share of funds corresponding to the percentage of houses they build and sell – rewarded  if they managed to build houses that their tenants wished to buy. They would also retain and be allowed to spend the money raised from sales.

In my opinion the above proposal would create a sustainable fund for the development of new social housing and improvements to the housing stock whilst still allowing social tenants the ability to fulfil their aspiration to get on to the housing ladder.  As people own their properties this gives them a vested interest and more of an anchor in their community and society as a whole.  I also think that there would be economic benefits coming with an increase in housing association development activity.

Lindsay Darroch
Partner – Head of Property 

Property Market Update – April – Sustained Recovery or Bubble?

Over the last few weeks there has been a lot of interesting news about the state of the UK property market and the Scottish property market in particular.  The most recent of these are the quarterly statistics from the Registers of Scotland which, on the face of it, make very positive reading showing volume of sales from January to March being 17,828, an increase of 22.9% with prices for the same quarter being up 3.5% over the same period.  As I have previously mentioned, I do think that statistics, particularly in relation to house prices, need to be treated with a degree of caution as these can be manipulated to show anything that the provider would like.

So what is my feeling about the Scottish property market overall?  I would caveat this question by focussing in on properties coming on the market and properties going under offer now rather than actual settlements – the Blackadders Residential team has had a record month in April for sale and purchase settlements and I am pleased to advise that May is carrying on that trend.

In relation to properties coming on the market, my feeling is that this number is up compared to last year and probably up 15% at the end of March compared to the same period last year.

I believe there has been a slow down on the number of properties coming on to the market in April caused by holidays and also the perception of the home owning public that there’s a lack of stock to buy –  “why should I put my house on the market if there is nothing there that I want to buy?” – the danger is that this view becomes a self-fulfilling prophecy.   My feeling is that April will show numbers comparable to April 2013 and this is a real concern to me as this could have an impact on future transaction numbers.

In relation to prices, there is no doubt that we are seeing  significant price rises which, although have been partially driven by improving economic conditions and the freeing up of mortgage funds, have also been caused, more significantly, by a decrease in certain types of properties in certain locations (finding properties in the correct catchment area, in the correct price banding for the geographical area are proving very popular).  I think that if the generalisation from the Registers of Scotland about the increase in house prices was distilled further it would show notable differences, not only between geographical areas but also types of properties within those areas. There has been significant price increases between the beginning of January and end of March. As long as stock numbers remain low supply and demand being out of synch will ensure this trend continues to the detriment of the majority of purchasers.

So what of the future?  I think May will be a critical month and will point the way for the rest of the year for the Scottish property market.  If there is a surge of properties coming on to the market in May we will have the stock to keep the property market free moving.  If there is not an increase in the number of properties coming on then I think house prices will continue to rise significantly and there is a real danger of stagnation as people will not market their properties because there is nothing for them to buy. If this is the case then I think the best we can hope for in 2014 is the same as 2013.

What action is required:-

1.         The Scottish Government should abolish the Home Report now and remove this costly barrier for people putting their homes on the market and testing the market.*(a blog to follow).

2.         Local Authorities should look favourably on planning applications for large developments as it is only by getting this new build stock on the market that we will increase the size of the stock on the property market to get things moving.

3.         We need to carry on helping first time buyers get on the market.

This review is very much a generalisation as there are still some significant geographical differences, for instance between east and west, Aberdeen and Edinburgh.  This is also my own opinion based on statistics from the Blackadders Property team and other statistics and chats that I have had over the last few weeks.

I will continue to keep you advised of trends.

Coming soon:-

1.         Is the Referendum in September now having an impact on the Scottish property market?

2.         What impact will the Mortgage Market Review (MMR) have on mortgage lending going forward and therefore on the property market as a whole?

Lindsay Darroch
Partner – Head of Property