Scottish Property News

Housing recovery at risk as stamp duty break ends

However, with the stamp duty holiday for properties priced between £125,000 and £175,000 due to end in December, there are fears in some quarters the recovery could stall, especially as mortgages remain hard to come by - particularly for borrowers without hefty deposits.

Even after the recent increases, house prices have still not yet recovered to where they were a year ago, though the average annual price fall in Scotland is now only 0.9%, compared to a 4% fall in England, a 6.7% decrease in Wales and an 18.3% decline in Northern Ireland, according to the department for Communities and Local Government.

On the buying side, it is still difficult for first-time or even second-time buyers to get on to and further up the housing ladder unless they have large deposits. Mortgage advisers say lenders are bringing more products on to the market after increasing pressure from the government, but they are expensive and lenders are being very cautious about whom they give loans to.

Abbey, for example, is currently charging 7.0% for its 90% mortgage, while at Halifax the rate is even higher at 7.29%. David Carmichael, head of Savills Private Finance in Scotland, says: "The high rates offered reflect the fact that lenders are afraid of higher loan-tovalue lending."

Even borrowers who are prepared to pay these high rates are finding it difficult to get loans, according to mortgage and financial adviser Paul Doyle, of Net Worth Planning in Larkhall. He says: "Credit scoring is still very tight. Lenders have gone from one extreme a couple of years ago when they would lend to almost anyone, to the other today when they have become very strict indeed."

Carmichael points out that the best value is for loans-tovalue of less than 75%. The Nationwide, for example, is offering a three-year fixed mortgage for 4.44%, but with a maximum loan to value of 60%. He says: "The difficulty is many thousands of borrowers do not have a 25% deposit or 25% equity in their home as valuations remain subdued.

"It is very apparent that those members of the public with limited savings, particularly first-time buyers, are facing a near-impossible task to step on to the property ladder without help from parents or grandparents."

Remortgage activity is also low as many homeowners who are coming to the end of preferential rate deals are being tempted to stay with existing lenders on standard variable rates as these are typically cheaper than the fixed rates they were on previously, and cheaper than the fixed-rate deals currently on offer. However, the risk is that when rates do start to rise again, homeowners will feel they have missed out on cheaper options as lenders normally adjust their rates quickly before consumers realise what is happening.

So what is going to happen to house prices going forward? Scotland's chartered surveyors expect prices to continue rising over the next couple of months, but only slightly. The re-imposition of stamp duty could cause a temporary blip in the new year. Paul Samter, economist at the Council of Mortgage Lenders, says: "The stamp duty concession has played a modest role in underpinning confidence in the housing market. As the end date approaches, we may see sustained levels of activity at the lower end of the market in a traditionally quiet time. But the corollary will be lower activity in early 2010" .

However, Professor Donald MacRae, Lloyds TSB Scotland's chief economist, believes house prices will go on rising in 2010, but not by much. "Prices have stopped declining but growth will be limited. I expect the Scottish economy to start growing again in the fourth quarter but recovery will be weak and earnings growth will be very low. House prices will move in relation to earnings, so I would expect them to rise by less than 5% next year."

CASE STUDY
DOUGLAS and JULIE CLIFT
Douglas and Julie Clift got the keys of their new three-bed home in Troon, Ayrshire, on Thursday, six months after selling their previous house, writes Simon Bain.

The couple, who have two children aged 15 and 11, wanted a bigger property though, in the end, it meant having to spend a few months helped by parents.

"We felt we needed more space, " Douglas says. "It was the right decision to go for it this year, though prices had dropped, and when I sold the house I expected to get a lot more."

Although new-build prices were lower too, the couple were worried about finding a mortgage. They applied for a builder's shared equity scheme where they would have repaid only part of the cost, but found that banks preferred first-time buyers.

"There were two doing it, the Nationwide and Halifax, but because of my age they turned me down, " Douglas says.

"The only bank that would give me a mortgage was the Clydesdale. We are tied in with them for two years, and in the long run I am more pleased."

The bank, which had given the couple a mortgage on their very first home, offered an 85% loan at a fixed rate of 5.9%.