Home reports create problems for first-time buyers

Kirsty Mcluckie on those left behind by Scottish system

First-time buyers, at least those who don’t have access to unlimited cash funds, are sometimes put at an unfair disadvantage by the Scottish selling system.

Buying at a fixed price or below the Home Report valuation can be fairly straightforward for those relying on a mortgage plus limited savings to fund the purchase, but when prices get competitive and you haven’t got deep pockets you are liable to be outbid.

The issue, according to Edinburgh-based solicitors and estate agents Warners, centres around the fact that lenders are constrained by the valuation in the original home report and will only lend up to this value.

Where a property attracts a large amount of interest and offers, the surveyor – with hindsight after a closing date – may concede that the initial valuation was conservative.

However, at that point, it’s too late for the firsttime buyer stretching themselves to find a deposit.

In response to this growing trend, Warners is calling on industry and political influencers to begin a “much needed consultation”.

David Marshall, operations director at Warners, says: “With demand outstripping supply in the local market it is becoming increasingly common for properties to sell for more than their Home Report valuation.

“Often the premiums being paid are substantial and it is not unusual to see homes selling for 10 or even 20 per cent above the valuation.”

He says even at the more affordable end of the city market, this can have an effect. “Take an example of a property with a valuation of £120,000 which achieves a selling price of £140,000. In this case the buyer would need to provide a deposit of around 10 per cent of the valuation, plus the difference between the valuation and the selling price, leading to them needing a total of £32,000.

“That’s £18,000 more than they would need in terms of cash if they simply had to provide a deposit equating to 10 per cent of the agreed selling price.”

Those who have a property to sell are less affected by this gap – they can often bridge it by achieving a better selling price for their existing property, in a rising market, and they are likely to be more flexible with equity in their existing home.

Warners is calling for an extensive consultation to address the issue in a responsible and sustainable manner.

David Lauder, mortgage adviser with ESPC Mortgages, agrees that the system can create problems for first time buyers but says: “One way to address this may be to give surveyors access to more detailed information on recent sales, including the number of notes of interest and value of offers that properties receive.

“This will allow them to more easily identify the current levels of demand at a very local level and potentially make valuations more accurate”

A recent report by Warners showed Edinburgh “hotspots”, Haymarket, Abbeyhill and Marchmont are seeing homes go for an average of 8.7, 7.5 and 7.3 per cent, respectively, above Home Report valuations.

The competition compounds issues for first-time buyers, such as the housing shortfall and the general increase in house prices, above wage growth.