House prices driving ahead but government scheme at a standstill - Scotland
SIMON BAIN and NAOMI CAINE
The housing market is driving forward, with monthly home loan approvals up 6.5per cent in June in the wake of the general election, the Bank of England said this week.
It came as the government said six banks have signed up to its Help to Buy Isa scheme, aimed at helping first-time buyers bridge the gap with rising house prices – Scottish houses are on average 10 per cent more expensive than a year ago.
Lloyds, RBS, Nationwide, Barclays, Santander and Virgin Money will offer the new savings product from 1 December.
Launched by the Government in the March Budget, the scheme offers a 25 per cent bonus if they use those savings to buy their first home.
A maximum of £200 can be saved each month, with the Government contributing up to an additional £50. The maximum Government contribution will be £3,000 per Isa. The bonus is available on homes up to £250,000 outside London.
The industry has said the original Help to Buy scheme, where the government contributes up to 20per cent of equity as an interest-free loan on newbuild property, has been a vital boost for first-time buyers.
But a leading housebuilder this week said the Scottish version of the scheme was causing instability in the market and disappointment to aspiring homeowners.
The Scottish Government’s Help to Buy scheme allocated £140m to the scheme in 2013-14, but the scheme was closed in July last year when the money ran out within three months. This year it set aside only £100m, plus a further £30m for a small housebuilder scheme. But on May 19 the government said the scheme was about to close, just seven weeks into the financial year, due to a “bumper level of reservations”.
Housing Minister Margaret Burgess said she would “continue to engage with the house building industry to consider what further support might be required in future”.
Homes for Scotland said the scheme was the catalyst behind a 16 per cent increase in private sector home building seen during 2014. But chief executive Philip Hogg said “disappointingly...with no announcement on further support forthcoming from the Scottish Government, we now seem to be at risk of letting the opportunity to build on its success pass us by”.
Taylor Wimpey’s finance director Ryan Mangold commented this week: “The deployment of H2B in Scotland is very different to the way it is done in England where there is a more medium-term view of using these funds to help individuals get onto the property ladder.” He said the annual allocation policy was “causing some disproportionate variances in the market-place..that ends up impacting supply because there is not enough certainty”.
Mr Mangold said he didn’t want to be too critical of a valuable initiative but the consumer was experiencing “uncertainty and frustration” because of the stop-start scheme.
The construction industry this week reported that three-quarters of firms were reporting higher workloads in private housing, though Ogilvie Construction warned there was still a “serious shortage of construction professionals” to deliver targets.
Homes for Scotland has said house completions are still 40per cent down on 2007.
House prices in Scotland are up 10.3per cent in the year to May 2015, twice the annual growth in England and Wales, according to the latest Your Move index.
But they fell back by 1.7 per cent in April and 2.1 per cent in May.
Prices were pushed up earlier in the year by homebuyers rushing to take advantage of favourable tax rates before the introduction of the Land and Buildings Transaction Tax (LBBT) on April 1.
Buyers now pay no tax on house purchases below £145,000, then 2per cent between £145,001 and £250,000. The portion between £250,001 and £325,000 is taxed at 5per cent, then 10per cent between £325,001 and £750.000. The highest rate of 12per cent applies to the value of the property from £750,001.
The LBBT makes property transactions of more than £333,000 more expensive than under the old system. Homes worth more than £500,000 are the hardest hit.
The announcement of the LBBT in December 2014 caused a spike in sales of top-end properties, and experts believe the monthly falls in April and May are the result of a market correction.
Christine Campbell, Your Move managing director in Scotland, said:
Campbell says: “There is no denying that the recent tax turbulence has affected property prices in the shorter-term…but overall Scottish house prices are up 7.6per cent since January.”
Most Scottish homebuyers will benefit from lower transaction costs under the LBTT regime, so the tax overhaul is likely to support the housing market recovery in the long term.
Economic growth is expected to prop up property prices. In Scotland, GDP growth is forecast to reach 2.4per cent in 2015, before slowing slightly to 2.2per cent in 2016.
Any increase in mortgage rates, coupled with stricter affordability tests and higher deposit demands, could hold back price growth.
However, PwC predicts that prices in Scotland will rise by 4.9per cent over the year – 0.4per cent below the UK average but ahead of many other UK regions. It also forecasts that the average Scottish house price will surge 30per cent to hit £259,000 by 2020. Only Northern Ireland (36per cent), East Midlands (31per cent) and the South of England (31per cent) are expected to perform better.