An overview of the housing and mortgage market - comment
The two house price indices I focus on are the UKHPI and Nationwide’s.
The former is the gold standard as it includes every sale but, because it is based on the date of entry, it lags the Nationwide index – which is based on mortgage offers issued up to the 25th of the relevant month.
By definition, the Nationwide index doesn’t include cash sales and will include some properties that ultimately are either not sold at the price on which the mortgage offer is based, or where the sale does not complete. However, neither of these factors will have a material impact on the price trend and these imperfections are a trade-off for figures that are as up to date as possible.
When restrictions were relaxed – which in Scotland was June 29 – activity in the housing market immediately recovered strongly, with price expectations at the time of the lockdown in March completely turned on their head. Although too early to be confident of enough robust data to quote reliable percentage increases on a regional basis, the real – i.e. not seasonally adjusted – Nationwide UK index increased by 4.5 per cent in the three months to September, having increased by just 0.5 per cent in the first six months of the year.
Despite increased redundancies over the next few months, I expect prices to end this year with an increase of 7 to 8 per cent. Indications from ESPC are that prices in Scotland have followed the UK trend in the three months to September, with the Borders and East Lothian areas being particularly strong.
However, the temporary Stamp Duty Land Tax cut in England is responsible for a large part of the stimulus to both activity and prices. The temporary Land and Buildings Transaction Tax reduction in Scotland is much smaller with a maximum reduction of £2,100, compared to £15,000 in England. Hence the impact on prices in Scotland will be far less and so I expect price increases in Scotland to be less than for the UK as a whole, which of course will be welcomed by first-time buyers.
The latter will also be pleased to know that following the success and subsequent closure of the initial First Home Fund on October 2, the Scottish government has confirmed plans to reopen the scheme in the new year for purchases due to complete in the 2021/22 financial year, although it hasn’t yet confirmed if any of the terms will change.
However, the pilot First Home Fund scheme – which offered first-time buyers an interest-free equity share loan of up to £25,000 – had several advantages over the Help to Buy scheme, including being available on existing properties as well as new build.
I expect high loan-to-value (LTV) mortgages – i.e. those requiring a deposit of less than 15 per cent – to become more readily available early next year, but for the time being, both first-time buyers and movers with a deposit of less than 15 per cent have limited options. For those buying a new build property – including movers – the Help to Buy scheme offers a 15 per cent interest-free equity share loan on purchases up to £200,000.
A few 90 per cent LTV mortgages are made available by lenders, but normally only for one or two days at a time, and an independent mortgage adviser will be able to monitor the market for when a suitable mortgage becomes available, as lenders normally gives advisers some notice.
For those with little or no deposit saved but with a family member or friend willing and able to help, a few lenders offer family-assist type schemes where the helper places money on deposit with the lender, and in exchange the lender will offer a higher LTV. Barclays Springboard mortgage offers a 100 per cent LTV mortgage at 3.05 per cent fixed for five years if the helper places 10 per cent of the purchase prices on deposit with Barclays for five years at bank rate +1.5 per cent; the purchaser gets a market-leading mortgage rate and the helper gets a very competitive savings rate.
As we look forwards towards the rest of this decade, the debate over whether Scotland has a second referendum on leaving the UK and applying to rejoin the EU obviously has major economic implications and so will impact the housing market. There are many unanswered questions at the moment, not least whether a referendum will actually be held, but if it is and the vote is to leave, the experience of Brexit suggests it will take until at least the end of the decade before Scotland actually leaves the UK!
Ray Boulger is senior mortgage technical manager at independent mortgage broker John Charcol
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