Lack of Housing for First Time Buyers

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Theresa May has talked about the lack of housing available for First Time Buyers - something we are all too familiar with in Edinburgh.

I read with interest the news item on the BBC News Website yesterday (05 March 2018) – Theresa May: Young are right to be angry about lack of homes.

Take a look but the gist of the item is that yesterday our Prime Minister, Theresa May, gave a speech at the National Planning Conference, in which she said that young people without family wealth are “right to be angry” at not being able to buy a home. She states home ownership is largely unaffordable to those without the support of the Bank of Mum and Dad. She is also quoted as saying that, “Talking to voters during last year’s election campaign, it was clear that many people, particularly younger people, are angry about this”.

Listening to people is one thing but the result leads to populist politics. This is where you choose to tell people what they want to hear regardless of it not being practical to resolve the issue and rather than telling people the truth. Well, that’s my impression of populist politics. What is “populism”? The Economist does a good job of explaining it.

And since I am by chance doing some reading on the 2017 General Election, it is interesting to hear that Theresa May listened to people during the campaign. From what I’ve read it would appear that the only time she listened was when being criticised and did the famous U turn on Care for the Elderly, which followed the equally notorious U turn in the Budget regarding National Insurance Contributions for the self-employed.

However, as the title suggests, the purpose of this article is to raise the awareness of the problems faced by First Time Buyers in Edinburgh.

And let’s face it, First Time Buyers, particularly in Edinburgh, have had a hard time of it for the past ten years. First we had the Banking Crisis where it was difficult to get a mortgage and now we have a property market in Edinburgh where we see first time buyer properties selling within a matter of days and at prices well over valuation.

Let’s look at an example to show just how much this sellers’ market is affecting first time buyers:

I have a salary that gives me a mortgage in principle of £200,000. Great I think but I only have a deposit of £10,000 saved up (or just as likely, my savings and a gift of £5000 from Mum and Dad). It is that £10,000 that is going to hold me back. Why? Because (1) my mortgage is based as a percentage of the Home Report value and (2) my £10,000 will not only have to make up the difference between the mortgage and the valuation but also what I can afford to bid over the valuation for the property I want to buy.

In that example and assuming I get a 95% loan to value mortgage the most I could offer on a property with a value of £100,000 is £105,000 and unfortunately that is not going to be enough in the current property market in Edinburgh. Forget about the fact that my salary could give me a mortgage of £200,000 it is the fact that I only have a deposit of £10,000 which is effectively pricing me out of the market as it is currently in Edinburgh.

So, why do we have this problem particularly in Edinburgh at the moment? This is down to supply and demand. There are simply not as many people selling property at the moment. We saw it throughout 2017 and it looks as though 2018 is going to be the same. A lot of people are trying to spin a positive about this, telling you that it is a great time to sell. But if you then have to buy you are faced with the problem that there are not that many properties on the market for you to choose from and what is on the market is also attracting multiple buyers and forcing prices up.

Why are the current means of assisting First Time Buyers not working?

I think it is fine for the Scottish Government to propose that First Time Buyers will not pay LBTT (Scottish Stamp Duty) on the first £175,000 (proposed in their draft Budget in December 2017 but still waiting to be approved) but that is only giving First Time Buyers a help of a couple of hundred Pounds of savings on tax, whereas they need thousands of Pounds in order to compete.

It has been said many times by those in the property professions that one of the main reasons why people are choosing not to sell their property and move up the property ladder is the LBTT (Scottish Stamp Duty) payable for higher priced properties. But does the Scottish Government listen? It seems not.

The Scottish Government introduced Additional Dwelling Supplement (ADS) in 2016. That is an extra tax equal to 3% of the purchase price if you want to buy an investment property. It was meant to deter investors from buying up too many properties that would otherwise be bought up by First Time Buyers. Has that worked? No. It seems to me there are just as many investors in the market as there were before and in the meantime we have seen the growth of Air BNB which has proved perhaps as attractive to investors as the more traditional letting market which is becoming ever more regulated and restrictive.

And then there is the Home Report itself. The reason the Home Report was introduced was largely resolved by the property industry, before it became a legal requirement to have a Home Report. That reason was that buyers faced having to pay for multiple valuations when buying a home. But Home Reports in Scotland (the equivalent was abandoned in England quite quickly) have the result of setting a value for a property without first marketing a property and testing it on the market.

Now it seems to me that if a property with a valuation of £150,000 in the Home Report is then put on the market and attracts ten offers at a closing date and sells for £165,000 should really have a value of £165,000, but it doesn’t because of the Home Report system we have.

If we could then have a means of re-valuing the property once an offer has been accepted and that value – as per the above example – is revised to be £165,000 then the need for First Time Buyers or Second Time Buyers to have huge deposits would be eased.

So should we re-evaluate the Home Report system?

The Scottish Government have been asked repeatedly to do so, but again has chosen not to do so.

The Bank of Mum and Dad now plays a part in almost every First Time Buyer purchase we are involved in. I am deeply admiring of parents who do this for their children but again the system does not favour them. The lenders will (although there are some exceptions) only accept the contributions from the Bank of Mum and Dad if it is a gift. They are not keen where their contribution is a loan that will be repayable. Surely lenders can think again about their attitude to this?

And finally, it’s not all about building new homes that are affordable to First Time Buyers…

Let builders build homes for families on areas outwith the city or on the edges of the city if that will free up First Time Buyer properties within Edinburgh.

We act for First Time Buyers all the time. I love acting for First Time Buyers and sharing their excitement at buying their first home but it is a job that has become harder in recent years. I do think we have a property bubble here in Edinburgh; properties are fetching prices well over valuation – which is not unusual in Edinburgh – but the tax system on property (LBTT) and the Home Report system are not helping First Time Buyers and are not helping people looking to move up the property ladder.

It is just my view, but perhaps the time has come for the Scottish Government to stop thinking that it has all the answers to problems it has no experience in and starts to listen to people and organisations that have and continue to work in the property sector of our economy, which rightly or wrongly, is an important part of our economy.

 


Passionate about property and providing great service at value for money.

Cameron Stephen
Partner with Cameron Stephen & Co. solicitors and estate agents, Edinburgh
cameron@cameronstephen.co.uk
0131 555 1296

 

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