Gordon Fowlis, regional managing director of Your Move, an estate agency chain that is part of LSL, comments:
"Falling housing prices have put a dampener on the Scottish housing market. The sluggish rate of growth, shown by the drop in prices by £303 monthly and by £480 compared to a year ago, adds to the many uncertainties facing the Scottish housing market. Yet there are several signs that things are changing. The mortgage market is perking up now that the economy is on the mend, with figures showing sales are up by 10% in January to August this year compared to 2012. This is due to the bounce back in first-time buyers which has kick started the market.
Momentum is building in the housing market as the Government is stretching out a helping hand to first-time buyers. Rising first-time buyer lending has boosted sales activity significantly, as first-time buyers can now take advantage of the many attractive mortgage deals on offer from banks and building societies. There has been a swift improvement in the availability of high loan-to-value mortgages which has sent waves of confidence across the board. Banks are being proactive in their approach and are happier to lend to borrowers that lack big deposits. Buyers are open to an improved range of mortgage deals, better pricing and more enhanced product choice due to the rise in competition.
In fact, the Scottish Government has unveiled its own version of the Help to Buy equity loan scheme, and around £220m has been set aside to help borrowers on to the housing ladder. First-time buyers are crucial to the housing market’s health, but it is activity from second time buyers and other movers which will put upward pressure on prices and boost the rate of recovery all round. The Scottish Government’s commitment to investment in affordable housing across Scotland will provide a firm foundation for the market’s growth in coming months.”
Dr Peter Williams, housing market specialist and Chairman of Acadametrics, comments:
"Two steps forward, one step back might be the best way of describing Scotland’s housing market in August. In July 2013 we saw a 27% increase in the number of housing transactions compared to June, against an expected increase of 7% for the time of year. In August, transactions fell back by 10%, against a seasonal expectation that the number of sales would remain at the same level as in July. However, at 51,000 transactions, sales from January - August 2013 are up by 10% on the same eight months in 2012. So the bounce in July sales has been only partly moderated by the fall in August.
Looking at house prices for the month of August, there is a similar pattern. The rise of 0.3% in prices in July 2013 has been moderated by a fall of 0.2% in August. However, on an annual basis, the rate of change in house prices has risen from -1.1% in July to -0.3% in August. This is a consequence of the -1.0% fall in prices in the month of August last year dropping out of the statistics.
Although the August 2013 statistics show a decrease of -0.3% in Scotland’s house prices on an annual basis, our trend line is showing a small increase in prices on the year, as illustrated in Figure 1 below. This is explained by the upward movement of £1,721 in average prices since December 2012."
The increase in sales activity in July was fuelled by first time buyers taking advantage of the more attractive terms on offer from the building societies. This relates particularly to the LTV% requirements which were eased considerably, enabling purchasers to reduce the level of cash required for a deposit. The intention of the Scottish Government’s Help to Buy scheme is similarly to lower the level of deposits required for the purchase of a property. Most estate agents are currently reporting an increase in buyer enquiries in Scotland, which in part is due to the more competitive mortgage products and deposit requirements now on offer.
As we indicated last month, an increase in activity by first time buyers is on its own unlikely to increase the headline average house price, and may even lower it. This is because the average price paid by a first time buyer in Scotland is around the £97,000 mark, which is two-thirds of the current LSL/Acad average house price of £143,278. It is therefore only when second time buyers and subsequent movers enter the market that we are likely to see upward pressure on the average price. However, given the increased activity at the bottom of the housing ladder, it is only a matter of time before we begin to see movement in the number of transactions, as well as possibly price increases further up the property chain.
One potential dampener to the mild optimism we currently see in the housing market is that of interest rate rises, which are for the moment on a distant horizon. Indeed, Mark Carney, the newly appointed Governor of the Bank of England, recently delivered a warning to home owners about the risks of rising interest rates: that people should check to see if they can still afford the repayments on their home loans, when “rates rise, as they will, when the recovery takes hold”. Few would disagree with that but it does sit slightly uncomfortably with the push for higher LTV loans under Help to Buy (Scotland).
So although the market outlook is for more transactions and continued price rises spreading slowly across Scotland, there are also considerable uncertainties regarding the different interventions in the market, their role, and the consequences of changes and termination. Some may feel a little daunted by the medium term prospect of rate rises. However, looked at another way, we see the market moving forward, access to finance increasing and borrowing costs relatively low – it does suggest that those who can buy should, if they so wish, with the added comfort that the government will need to make a success of their engagement with the market.
