Vital need to kickstart sluggish property market

Wednesday 31 October 2012

SCOTTISH house prices continued their downward drift in the second quarter.

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Good news or bad news? That depends entirely on individuals and where they live, as the figures behind yesterday's headlines from the Registers of Scotland reveal major regional and sectorial variations, with upmarket properties and more affluent areas holding up best.

Lower prices will be welcomed by first-time buyers, struggling to reach the first rung of the housing ladder. For too long there has been an unhealthily wide gap between house prices and average incomes. Any change that makes first homes more affordable is a positive development, though first-time buyers still face big hurdles in the form of large deposits and exacting checks on their credit worthiness as lenders become more risk-averse. Just as significant as the drop in average prices is the low turnover of properties, with fewer than 20,000 sales in the second quarter, the lowest since Scottish records began in 2003 and only half what they were in 2007 to 2008. Though this may be bad news for estate agents, it partly represents a return to sanity in a market where irresponsible lending by companies such as Northern Rock contributed to the banking crash. Though not comparable with the lunacy of the US sub-prime market, 120% mortgages and lending at seven or eight times annual salary were madness. It left many with housing costs they could ill-afford and had interest rates risen rather than falling, a wave of mortgage defaults would have been unavoidable. Also, from the macroeconomic point of view, an economy in which more young professionals rent rather than buy property is no bad thing. It makes the workforce more mobile because employees find it easier to move to where there is suitable employment.Nevertheless, though some sectors of the market and some geographical areas are proving extremely resilient to the downturn, generally stagnating, falling prices must be bad news in a country of 1.5m owner-occupiers (the remaining 900,000 households rent). In an economy so focused on bricks and mortar, it not only reflects a lack of confidence in the housing market but also has a knock-on effect on the entire economy. Homeowners whose main asset is shrinking in value are more likely to postpone buying a new car, fridge or holiday.A range of factors may help explain these generally poor figures, including ongoing uncertainty in the eurozone, which makes banks nervous about lending, and the end of the stamp duty holiday on properties between £125,000 and £250,000. Clearly, even those with good credit records continue to have problems borrowing. That is why schemes like the UK Government's Funding for Lending and the Scottish Government-supported scheme offering up to 95% finance on new homes to credit-worthy first-time buyers are positive developments. The new mortgage scheme celebrated its first sale yesterday. It is too early to tell whether either scheme will make a material contribution to kickstarting Scotland's sluggish property market. Until that happens, the entire economy is likely to continue bumping along the bottom.

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Vital need to kickstart sluggish property market

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