‘Catch 22’ for first-time buyers

ESPC said the supply of new homes for sale in Edinburgh was 8.8 per cent lower in the three months to the end of July than in the same period a year ago. Picture: Jane Barlow

First-time buyers are being frozen out of the housing market in Scotland as a chronic shortage of affordable homes drives up the cost of both renting and buying.

Low house building levels and a decline in the number of properties on the market is exacerbating the squeeze on first-time buyers, pushing the property ladder further out of reach.

The supply of new homes for sale in Edinburgh and the Lothians was 8.8 per cent lower in the three months to the end of July than in the same period a year ago, according to ESPC figures out last week. It said the gap between demand and supply was continuing to grow and was likely to push house prices up further over the coming year.

Meanwhile, property website House Simple said new listings in Edinburgh and Glasgow plunged by 30 per cent last month, the biggest fall in the UK.

While housing market activity usually eases off during the summer anyway, the number of new homes going on sale has been low for some time, according to Mark Dyason, director of Edinburgh Mortgage Advice.

“I am getting a queue of first-time buyers getting an Agreement in Principle before they go looking because they know there will be a lot of competition when they do see somewhere,” he said. “One of the reasons behind not putting houses on the market is because of a lack of stock to buy even if they sold, so it’s a bit of a Catch 22 really.”

House prices in Scotland are already climbing at a rate that adds to the pressure on prospective buyers. They were up 2.6 per cent in June, the latest Your Move price index shows, and will continue to increase over the next five years, according to new regional analysis from accountants PwC. It believes prices north of the Border could rise from an average of £200,000 this year to £259,000 in 2020.

A combination of higher prices, tighter borrowing conditions and rising deposit requirements will leave a growing number of under-40s dependent on the private rented sector, it said. Consequently there will be more tenants than homeowners in Scotland in a decade’s time, PwC predicted.

“The fundamental point is that supply of properties coming on to the market and new build is fairly stagnant at best,” said John Boyle, head of research at Rettie & Co. The impact on house prices is currently being contained by “sensible” lending levels, said added.

“It is, however, freezing out many from participating in the market because of lack of access to finance, lack of new build and high prices. Hence owner occupation levels are falling and rents are rising more sharply than house prices.”

This will remain a problem until the issue of supply is addressed, he added. But the most recent figures suggest too little is being done.

New build starts in Scotland were up 15 per cent in 2014 and completions increased 4 per cent to 15,541, according to Scottish government data. The level of activity differs significantly by area. New build starts and completions fell by 11 and 35 per cent respectively in Edinburgh, whereas new starts in West Lothian jumped by almost 50 per cent last year.

But house building across Scotland remains well below the levels needed. A report published in June by the Commission on Housing and Wellbeing, set up by Shelter Scotland, called on Holyrood to increase new builds to 23,000. Failure to do so would exacerbate the current supply crisis, it warned.

Graeme Brown, director of Shelter Scotland, said: “To meaningfully tackle our housing crisis, we need to build more affordable homes, including 10,000 new social homes every year to help those for whom the prospect of a home of their own is still well out of reach.”

It’s not only first-time buyers who are affected. Moving from one or two-bed flats to three or four-bed properties is often as expensive as getting on the ladder in the first-place, analysis by Experian shows. Some of the biggest disparities are in Scotland, where larger properties in places including Clydebank and Paisley are more than double the price of a one or two-bed home.

The average family income in more than two-thirds of the UK’s postal districts would not be enough to secure a mortgage on a one or two-bed home, it found.

Jonathan Westley, managing director of consumer information services at Experian, said: “Getting that first foot on the ladder is an important step, but moving on to a larger home can be as challenging, particularly given the shortage of housing in some areas and the increased focus on affordability in mortgage lending rules.”

Scotland’s housing crisis means many people are being “denied the right” to a “secure, affordable home to live in, whether renting or buying,” warned Brown at Shelter. “Would-be first-time buyers still face growing difficulty trying to get on to the property ladder, with high house prices and a squeeze on lending leaving many locked out of the housing market. Couple this with the 150,500 households on waiting lists and 10,488 families and individuals in temporary accommodation and it is clear there is little or no light at the end of the tunnel that is Scotland’s housing crisis.’