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