So the latest report from the Bank of Scotland is particularly discouraging. It finds that the number of first-time house buyers in Scotland has fallen to its lowest level since 1976. The number has dropped four per cent this year to 17,121 compared with the 2010 figure and is now less than half the peak of 39,100 recorded in 2006. The decline has continued despite bank research showing that Scotland has some of the most affordable properties in the UK.
But the size of deposit that first-time buyers now have to find to make a purchase is one of the key factors preventing people from buying their first house. Politicians have been quick to demand action. There are demands for the UK and Scottish governments to stimulate the fragile property market. Certainly there is every reason to ensure that the mortgage application system is working as efficiently and as effectively as possible. And encouragement should be given to the building of new starter homes.
But this is a housing recession as no other and politicians need to be careful in seeking to treat it as a “normal” cyclical downturn amenable to the usual stimulus measures.
First is that the period 2002-6 was one of great abnormality in the housing market and in no way should be treated as a healthy base to which to return. The boom in that era was characterised by excessive and imprudent lending by banks and building societies, the suspension of normal lending criteria and the resort to self-certificated mortgages – better known as “Liars’ Loans”.
Second, the housing market correction – principally the ratio of house prices to average incomes – has still some considerable way to run. Sellers continue to be in denial as to the true value of their properties and have withdrawn them from sale in the belief that an upturn to “normality” was round the corner.
And third, a larger and stronger private rented sector brings with it considerable benefits. The economy more than ever requires employment mobility – the ability of workers to move to areas where jobs are to be found. In the early working years rented accommodation is often appropriate.
Home ownership, while attractive, should not be seen as the be-all and end-all of housing policy. The home with the mortgage can become a millstone for those in those sectors of the economy where mobility is required.
Today’s state of affairs is by no means desirable, but a series of corrective processes is now at work. Politicians need to be careful that interference may work to slow these corrections and delay an adjustment process that provides the foundations for longer term stability.