HouseS1 prices rise 5%... but will negative equity return?

Experts say new tax stifling market

‘Government needs to do something’

THE average price of a house in Scotland has surged by nearly 5 per cent in a year – but there are fears owners of ‘premium’ homes could slide into negative equity.

Latest figures from the UK house price index show the average price for July was £149,185 – up 4.8 per cent on July 2016.

However, experts said high rates of land and buildings transaction tax (LBTT), which hits 10 per cent for houses valued above £325,000, were having an impact on the upper end of the market.

LBTT is the Scottish Government’s replacement for stamp duty. Estate agent Savills said it was affecting the premium market as the tax rate becomes 12 per cent above £750,000.

The tax on a main residential property costing £750,000 is £48,350, compared with £27,500 in England and Wales, where stamp duty still applies.

The cost of the average premium property has fallen in the past five years from £572,000 to £554,000. This price drop heralds the spectre of negative equity for those who bought premium homes before LBTT was introduced and now find their property is worth less than they paid.

Faisal Choudhry, Scottish research director for Savills, said: ‘The Scottish Government needs to do something about LBTT.

‘In Edinburgh, fewer properties have come on to the market in the £400,000 bracket than last year. So people are staying in their homes for longer because the amount of LBTT they have to pay is so huge.

‘That means people in the £200,000 to £400,000 bracket can’t move up either, because there are so few properties available. If the Government reconsiders LBTT, the Scottish house market could outperform other parts of the UK.’ The July UK House Price Index, published yesterday by Registers of Scotland, show increases in the average price were detected in 30 of the 32 local authority areas.

Edinburgh saw the biggest increase in average prices over the past year, rising almost 10 per cent to £243,920 in July. Aberdeen had the biggest fall, down 7.7 per cent to £166,836. The average price for property purchased by a first-time buyer in July was £120,630, an increase of 4.1 per cent on the same month in the previous year.

Across Scotland, all property types showed an increase in average prices in July compared with the same month in the previous year. Detached properties showed the biggest increase, rising by 5.6 per cent to £255,993.

Registers of Scotland business development and information director Kenny Crawford said: ‘Average prices in Scotland continued their upward trend in July with an increase of 4.8 per cent when compared to July 2016. This represents the biggest percentage increase year-on-year since March 2015.

‘While average prices have been steadily increasing each month since March 2016, when compared with the same month of the previous year, sales volumes figures have been more changeable over the 12 months to May.

‘May 2017 showed an increase in sales volumes in Scotland of 13.7 per cent when compared with May 2016. However, volumes in May 2016 were lower than usual, a possible effect of the introduction of changes to the land and buildings transaction tax that came into effect on April 1, 2016.’