Price trap for homeowners ... ten years after crash
HOUSE prices in Scotland are just 2 per cent higher than before the financial crash, leaving some homeowners with properties worth less than their outstanding mortgage debts – the dreaded negative equity.
The Scottish property market has taken a decade to recover from falls of as much as 18.5 per cent, according to a report by Designs on Property.
But Land Registry data suggests the country is now seeing slightly faster growth than the UK as a whole, sparking hopes of a sustained recovery.
House prices across the country rose by an average of 3.2 per cent in July to £152,245, a sharp fall from the 4.5 per cent annual rise in June, but higher than the 3.1 per cent south of the Border, where the average property cost £231,422.
First-time buyers still have better prospects of getting on the property ladder compared to the rest of the UK.
Yet analysis by Designs on Property points to huge regional variations behind this growth, with some areas struggling to recover from the housing market crash. It says that, year on year, the figures for Scotland look good compared with the rest of the UK, with growth of 2.6 per cent for flats through to 4.1 per cent for terraced homes.
But it adds: ‘However, it’s important to bear in mind that over time the figures are nowhere near quite so rosy.
‘Having seen falls of 14 per cent to 18.5 per cent during the credit crunch, the recovery since 2009 has been almost non-existent with property prices still, on average, just 2 per cent higher than they were in 2007.’ It goes on: ‘Property prices for many may not even have recovered, leaving some in negative equity.’
Variation can be seen across different types of properties, as well as regions.
While prices of detached homes are 11 per cent higher than they were ten years ago, prices for flats are still, on average, 4 per cent lower.
Kate Faulkner, the report’s author, says: ‘This is likely to be due to what appear now to be overpriced city-centre flat developments in areas such as Glasgow in particular.
‘Some flats I’ve seen have been selling for a lot less than they were in 2007. One sold in 2007 for just over £97,000 and has sold in 2018 for £77,000.’
The price drops could sound alarm bells for those hoping to get onto the ladder through the Help to Buy scheme.
Through the initiative buyers can apply for loans worth 20 per cent of the asking price from the Government.
But as Money Mail reported earlier this month, the scheme has been exploited by developers ramping up prices.
New flats in south-east London were found to be overpriced by 15 per cent, putting buyers at risk of being trapped in negative equity from day one, with a property worth less than they paid for it – and a home that’s now no longer eligible for resale to future Help to Buy borrowers since it is now second hand.
Meanwhile, the variation in the recovery between cities since the credit crisis is evident. Edinburgh has seen average price growth of 14 per cent since the 2007 peak to £254,170, still far behind London’s 58 per cent rise to £484,926, according the Land Registry.
But Glasgow and Dundee have seen hardly any change. Falkirk has seen just a small rise. ‘The difference across key cities in Scotland is vast,’ says Miss Faulkner. ‘Edinburgh is really driving the average prices up.
‘It’s an incredible city, but one very short of stock versus demand.’ In Aberdeen, by contrast, the oil slump has seen prices fall by 7 per cent on 2007 and 4.4 per cent on 2017, at £166,71.
Across Scotland, year-on-year growth varies from below 1 per cent in the Borders and Dumfries and Galloway to 9.7 per cent in Midlothian and 10.8 per cent in West Lothian, as buyers are pushed out of Edinburgh.
In the capital, young buyers face a potential affordability crisis, with one-bedroom flats in first-time buyer hotspots shooting up in price over the past year.
Increases range from 8 per cent in Abbeyhill and Meadowbank to 17 per cent in Tollcross, Polwarth and Shandon, accordOne ing to the Edinburgh Solicitors Property Centre.
In hotspots such as Edinburgh, flats in desirable student areas are promoting prospective buyers to bid tens of thousands above the asking price in Scotland’s ‘blind auction’ system.
John Brown at surveyor John Brown & Company says: ‘Edinburgh has less property for sale, market demand is more than supply, and prices are increasing.’ agent in the capital says: ‘In the past, a 15 per cent markup on the asking price was standard, but in some areas buyers are missing out even after adding a 20 per cent or 25 per cent premium.’
It also means a likely extra bill for land and buildings transaction tax (LBTT), which kicks in for properties above £175,000.
LBTT has been blamed by some agents for depressing transactions higher up the market, contributing to a squeeze on supply in the capital.
RESEARCH by agency Knight Frank has pointed to a 16 per cent fall in properties coming onto the market in Edinburgh in the past year.
Currently, home ownership among 25 to 34-year-olds has tumbled from 54 per cent two decades ago to 37 per cent, according to data published by Bank of Scotland last month.
But the Scottish Government says prices for first-time buyers remain ‘significantly more affordable than elsewhere in the UK’.
According to research by Yorkshire Building Society, Scotland is one of only two parts of the UK where aspiring homeowners have a realistic view of how much it will cost them to get onto the ladder.
The society’s recent FirstTime Buyers report suggests raising a deposit is the main barrier for more than a quarter of would-be buyers across the UK, but the likely savings gap varies significantly by region.
In London, first-time homeowners paid, on average, nearly £415,000 last year with an average deposit of £118,531, but potential first-time buyers are intending to save less than half of this at £49,000 – a savings gap of £69,531.
In Scotland, the average price paid was £137,714, with an average deposit of £24,155, some 17.5 per cent. But the aspiring first-time buyer’s average savings pot was expected to be £25,560, a £1,405 surplus. Miss Faulkner adds: ‘The good news for anyone thinking about buying for the first time in Scotland is that you can. With the Help to Buy Lifetime ISA, coupled with the Help to Buy new build scheme and areas which have incredibly good value first purchase properties, those who want to get on the ladder should be able to do so.’
Landing a £100,000 property in Glasgow with a 5 per cent deposit, using a Help to Buy ISA with the government’s 25 per cent bonus, would mean saving only £4,000 for a 95 per cent mortgage costing around £400 a month.