The property market is something that affects us all, be it buying and selling a house, to property investment. This blog is our take on the property market in Scotland in general, and Dundee and Angus in particular. To get in touch with us, please visit www.blackadders.co.uk.
Recently I was asked what effect I thought the General Election would have on the property market. The question was brought about by the heady excitement and much discussion of the recent leaders’ debate. My experience is that after a very slow start in January and February, the number of properties coming on to the market in the Dundee and Angus areas, whilst not quite reaching the boom levels of 2006/2007, are extremely good and way ahead of 2008. The National Association of Estate Agents’ March report indicates that this is a pattern that is repeating itself throughout the whole of the UK. Sales are also starting to follow this activity with an increase in the number of closing dates and many prices exceeding Home Report valuations. My feeling is that the housing market is building up a momentum of its own and is not paying much attention to the General Election. The economists seem to be indicating that whilst the UK economy remains weak, the threats of a double dip recession seem to be receding and yesterday the Council of Mortgage Lenders announced that there was a 24% rise in mortgage lending in March compared to February and the figure was also up on 3% on March last year.
It was disappointing that the property market was not discussed during the leaders’ debate and I would hope that this topic is covered in their final debate about the economy, particularly in relation to first time buyers. Looking back to the end of the recession in the early 90’s, the property market stagnated due to the absence of first time buyers. With the current lack of mortgage finance and the need for very high deposits, I fear that this is a trend which may be repeated. My plea to the political parties is that they grasp this issue as first time buyers are fundamental to the growth of the housing market. My suggestion would be for a Government backed scheme where banks lend the first time buyer a mortgage up to 95% with the Government acting as a guarantor for 10% of that mortgage. This would be for properties up to £150,000 and would only relate to first time buyers as per the recent Inland Revenue definition. The risk to the Government would only be if the person defaulted and with tighter restrictions, this should be minimal. The scheme could be funded by changes to the Stamp Duty regime (perhaps adding an extra band for properties worth more than £2 million) plus changes to the Capital Gains Tax rate for people selling properties other than their sole or main residence within a 24 month period.
Unless more help is given to the first time buyer there is a danger that a whole section of property will go into stagnation both in terms of value and also condition and this will have a negative impact on the property market as a whole.
In 2003 a newspaper carried the headline that Dundee was the property investment capital of Western Europe. Low entry prices, strong demand from tenants, good gross rental yields compared to price all contributed. This trend continued but as prices carried on their rise and rent stayed the same, yields dropped and with the credit crunch in 2008 the picture became somewhat different.
Well what about now?
There is still a lack of mortgage funds available for the buy to let investor with 60% to 70% loan to value becoming the max and stringent rent to interest coverage usually between 120% and 140%. However, in the last couple of weeks I have noticed an increase in property investors coming back to the market. Lower prices tied in with a very strong tenant demand have caused rents and rental yields to purchase price to increase – lack of mortgage funds available to the first time buyer can be attributed to this situation as they struggle to climb on the property ladder. This along with the attraction of potential Capital Gains in the short to medium term has got the sophisticated investor back looking at property.
In times of low interest returns on savings, a secure investment that can be liquidated is a good way to grow your savings with minimal risk – provided you take the right advice.
Whilst I think it is too early to expect returns of the headlines that we saw in 2003, I certainly think that as the economy recovers there will be a growth of property investors coming into the market.
Last week I was at the Council of Mortgage Lenders Annual Lunch. The keynote speaker was Bill Jamieson from the Scotsman. Bill’s talk was informative, enlightening and enjoyable to listen to. As well as discussing the economy he also made the point that housing market surveys are easily manipulated and they do not always paint the full picture. This is a view I strongly endorse as often we do not know the basis on which they have been calculated and this can cause a false impression. Figures can also be skewed when the number of property transactions drop to low levels.
Recently I read that a survey of the English housing market indicated that listings and sales in January and February were down to their lowest level. This was also the case in the Scottish market and Dundee in particular. The extreme weather knocked the usual New Year splurge of properties coming on the market, this situation was not helped by the Home Report. I was concerned that this was a trend developing for 2010 but I am pleased to say that in March we saw an increase in the number of properties coming on to the market and a significant increase in sales. According to my contacts across Scotland this pattern seems to be repeated throughout the country with only a small number of areas bucking the trend. So what about prices – well, prices are not back to the peak levels of 2007 but in general they have not dropped to the low levels that we anticipated and whether or not you see any growth will very much depend on when you purchased your property.
All in all prices are holding up and encouragingly I am seeing an increase in the number of properties selling for more than the asking price and the Home Report.
Is it too early to call green shoots for the Scottish Housing market?
It may be too early to call a recovery but definitely green shoots are starting to appear.
I do not think yesterday’s Budget went far enough to bolster the property market nor to help the first time buyer. Whilst the changes to the Stamp Duty threshold are welcome, as with everything the devil is in the detail. I would have preferred a much bolder approach from the Chancellor exempting all property transactions up to the value of £250,000 from Stamp Duty. This would have been a much clearer approach and also much easier to police.
The definition of “first time buyer” is very specific – someone who has never had their name on the title to a property anywhere in the world, thus knocking out at one fell swoop a young couple, one of whom has never owned a property before and the other who has. Will we also see a situation where older couples who are downsizing and who have a property in one of their sole name will be much better off buying in the other’s sole name to take advantage of these changes to the rules?
As I have mentioned in a previous post, I would have welcomed much more support for first time buyers with more pressure being put on lenders to increase the mortgages available and also perhaps a fund to assist first time buyers with their deposits. This change could have been funded from changes to the Capital Gains Tax rules increasing the Capital Gains Tax payable on people who sell properties other than their sole or main residence within say a five year period.
I also think more could have been done to encourage property investors to come back into the market perhaps with the changes to the pension rules allowing a number of buy to let investment properties being purchased through a pension vehicle.
My feeling is that whilst the Budget is a step in the right direction more could have been done to help the housing market and in particular the first time buyer on whom the whole housing market chain relies.
There is a lot in the press about the state of the British economy and with a General Election fast approaching this debate will increase. I am surprised that at this stage there is not more discussion regarding the housing market and how best to stabilise it. As a professional who is heavily involved in the property market it seems very clear to me and not open to dispute that our economic boom of the last few years was based on the increase in the value of houses. Unless the housing market can be stabilised I do not think that the economy will ever get back onto a stable footing – certainly for the banks, once the housing market does stabilise, this will increase their confidence to start lending again.
One way of increasing this and one of the problems with the housing market at present is that it is very difficult for first time buyers to get a product. It would be a brave political party that came up with a bold initiative to create a fund to help first time buyers get back on the market – why not force the banks to lend 90% to first time buyers with the Government guaranteeing the 5% over and above that meaning that first time buyers only had to find a 5% deposit? This could be done at little risk if the lending criteria was correct, i.e. between 3 and 4 times salary and that there was a degree of affordability. This would allow more first time buyers to get on the market thus stabilising the housing market and allowing the housing chain to get moving again.
Also what about again raising the idea of allowing people to use their pension funds to purchase buy to let properties, perhaps limiting the number of properties they can buy, this would then allow further funds to be injected into the housing market, stabilising house prices and again increasing confidence.
A way of funding this may be to introduce an enhancement to the Capital Gains Tax regime meaning that taxing people a higher percentage of the gain if they trade a property other than their sole or main residence within 5 years of purchasing, i.e. 70% after first year, 60% after second year and so on. By assisting first time buyers to get on the market, the housing market will begin moving again, benefiting the whole economy.
I have read with interest some recent articles in the press regarding Home Reports. Given that they have now been in place for over 12 months I found it very interesting that this debate is still continuing and perhaps more vociferously than it did at the time the idea was first mooted. As a practising Solicitor with considerable experience in the property market I can honestly say that I have never come across a notion that has been so ill conceived and ill thought out as the Home Report. It benefits no-one apart from Surveyors – apologies to all my friends who are Surveyors, although I fear that they themselves may come a cropper when the panels or nationals take control of the provision of Home Reports at the same cost to the client, taking considerable profit themselves and squeezing the Surveyors into providing Home Reports for much lower costs.
Home Reports were supposed to speed up the process – they haven’t – it now takes a lot longer to get the property on the market. They were supposed to give a prospective purchaser more knowledge about a property at an earlier part of the process – they don’t. Purchasers are people who rely on professionals, i.e. Solicitors and Surveyors, to guide them. The Home Report is poorly laid out and the Solicitor is at a disadvantage not being able to speak to the Surveyor to get his comments by way of verbal report. There is still the question of how much influence a seller or selling Solicitor has over a Surveyor. There is a huge conflict of interest in the process in that the Surveyor is being instructed by the seller who is paying his fees but his report is being relied on by a purchaser.
Never mind the increased cost, the delay, the varying valuations, the Home Report was a concept that was not required. Offers subject to survey worked fine – everyone knew where they were, prospective purchasers were taking advice from professionals who were able to give them guidance regarding values, banks felt more comfortable relying on surveys instructed after offers and if you were a seller who required to get their house on the market due to financial difficulties you are not being prejudiced by the expense of the Home Report.
A plea to the Scottish Government…
Please take a brave decision and scrap this silly scheme.