More new houses are needed, writes Wilson Hunter
THE residential property market is seldom dull; however, the last year has seen more than the usual amount of fluctuation, leading those who operate in the sector to shift uneasily between nervous anticipation and thinly-disguised fear of the future. It has long been said that a strong property sector is a crucial part of a successful economy and that the residential property market cannot cope with uncertainty. Given that we have been subjected to not one, but two divisive political campaigns in the lead up to last year’s referendum and the recent general election, it is hardly surprising that some property owners have taken a “wait and see” approach.
In between those two political campaigns, we in Scotland have had to come to terms with the new Land and Business Transaction Tax (LBTT). The result of its introduction (on 1 April) was that we went from famine to feast as far as property sales were concerned. A property market that had virtually ground to a halt around the time of the referendum suddenly sprang into life as those dealing in properties valued above £333,000 sought to take advantage of the lower costs under the disappearing SDLT system. On the plus side, the political football has now been put back in the cupboard – until next year at least.
So, what now for the residential market? By the start of 2014 it had made a gradual return to the heady days of 2006/7 – closing dates were the norm rather than the exception and nearly 70 per cent of all sales were achieving Home Report valuation or above, rising from a figure of only 25 per cent back in 2010/11. There seems little doubt the demand for property is still strong; however, last month the ESPC recorded the first year-on-year drop in the number of properties registered for sale. By common consent we have now moved back into a seller’s market. This is signposted by the speed at which properties are selling, coupled with the number of closing dates that are being set. The poor supply of available properties means buyers have to move quickly and it is fair to say there has probably never been a better time to sell since the market fell away in 2008.
Is this sustainable? What pieces of the property jigsaw need to be in place to avoid another round of spiralling prices followed, almost inevitably, by another fall?
First and foremost, we need to see more new houses built. In 2007 the Labour government set a target for 240,000 new homes a year to be built by 2016. The UK is, however, nowhere near that target and last year’s figure was just 141,000. Why? If you speak to house builders they will say the planning process is still far too slow, bureaucratic and cumbersome. The Government counters that by pointing to the new National Planning Policy Framework, which has seen detailed planning consents increase in each of the last four years, hitting 240,000 last year.
Others point to the lack of available and affordable land as the main stumbling block to progress. Is it perhaps time to revisit the Greenbelt regulations? We must not forget that in the immediate aftermath of the financial crisis construction workers left the industry in droves, many building suppliers went out of business and so the current surge in demand is encountering a lack of both materials and manpower.
If, somehow, the supply of available homes was to dramatically increase, would buyers be able to take advantage of that? Could the mortgage market cope with a surge in demand? The Bank of England reported a 9 per cent year-on-year increase in the number of mortgages granted in April; however, despite the fact that very low interest rates are hugely appealing, first time buyers are again being squeezed. Rapid house price inflation, coupled with tighter limits on what people can borrow compared to their income, means first time buyers have to find a larger deposit.
The Help to Buy Scheme (Scotland) has proved very popular; however, it is already fully subscribed for 2015-16. If the Government is serious about helping the housing market should it be looking to extend that scheme? The property market continues to be pulled from pillar to post and it is difficult to predict what happens next. Despite everything, though, if I had money to invest at the moment I would still be inclined to look to residential property as a pretty safe bet.
• Wilson Hunter is head of Hunters Residential, part of Gillespie Macandrew LLP www.huntersresidential.co.uk