Across the wider region the market is desperate for a product equivalent to England’s ‘NewBuy’ or ‘FirstBuy’ schemes to come in to force in Scotland. As with most regions of the UK, first-time buyers are struggling to raise deposits, reducing their ability to enter the housing market, unless support is available from parents.
According to the Council of Mortgage Lenders, mortgage advances to first time buyers in Scotland fell by half from 35,300 in 2007 to 16,900 in 2011 (see Graph 4). There is also a great reluctance among young professional upsizers to pay above £250,000, the 3% stamp duty threshold.
The housebuilding and mortgage lending statistics highlight the importance of the need for a mortgage indemnity scheme. The Scottish Government has recognised this and an innovative new scheme will be launched from summer 2012. The MI New Home mortgage indemnity scheme is designed to bring 95% loan-to-value mortgages back into the mainstream lending market for those who can sensibly and sustainably afford them.
According to Homes for Scotland, it is envisaged that the scheme will assist some 6,000 first-time buyers (and others who aspire to purchase a new build home but are currently locked out of the market as a result of high deposit requirements) over a three-year period.
MI New Home is also designed to alleviate pressures in other housing sectors, as well as creating or safeguarding 23,000 construction jobs and over 650 apprenticeships.
Drivers of demand
Edinburgh, Glasgow and Aberdeen are home to approximately 120,000 full-time students, according to Higher Education 2010/11 statistics. Strong growth in full-time students – an increase of 10% over the last five academic intakes – has amplified the pressure on the delivery of student accommodation, especially as the number of international students has continued to increase, intensifying the shortfall of bed spaces across the three cities.
The shortfall in student bed spaces and relatively tolerable residential yields, averaging around 5% for a two bedroom flat across Edinburgh, Glasgow and Aberdeen, means that new build city centre developments specific to these markets have outperformed, in terms of sales value and rates of sale.
Equity-rich downsizers are also driving sales in the West End of Glasgow and similarly sought after areas in Edinburgh. Benefits such as low maintenance, and features like secure parking, private terraces and lift access, are cited as favouring factors in their buying decisions.
Residential investment
Most of the new build residential investment activity in Scotland has been in Edinburgh and parts of Glasgow, where rental yields are comparatively low compared with other parts of Scotland, but capital growth prospects are stronger. Investment in these areas is viewed as lower risk.
However, the prospect of increased yields in sectors of the market where owner-occupiers are set to become much less dominant should pave the way for progressive increases in activity, as rental demand in these areas grows. We expect localised differences in yields to widen in the future, as constraints on mortgage finance limit the ability of households to buy lower grade properties in secondary or tertiary locations. This is set to push the balance of occupier demand towards renting in such locations, thereby suppressing capital growth but fuelling rental growth.
