Our last report of Autumn 2017 drew attention to the fact that demand for housing in our region was far outstripping supply and was causing a boost in property prices. Three months on and this trend does not appear to have stopped. Properties continued to sell well throughout the winter period, with many achieving above Home Report value and the average days to sell dropped to near record levels for those selling through our local TSPC. This positive news does however come with the balance that without new properties coming to the market, the existing stock is dwindling and buyers are left fighting for what is left. Whilst this is good for those in a position to sell, it can make finding and being able to afford a property to buy slightly more of a challenge. Why then is this trend so prominent and what are the chances that it will continue for the forseeable future?
There has been a lot of discussion in recent times as to why people are currently reluctant to sell, with Brexit negotiations and Referendum speculation often an easy scapegoat. In amongst this, legislative changes within the letting spectrum and also LBTT (Land and Buildings Transaction Tax) appear to have knocked the confidence of buy-to-let investors who form an important part of the market. On a more commonly relatable level, it is apparent that many potential sellers are put off bringing their house to the market simply because they don’t see any properties for sale that match their needs. The cyclical effect of this is obvious and likely means that we will rely on an external impact on the market to restore confidence. On this focus, we’ll look ahead briefly at what factors may impact the market in 2018.
Dundee on the up
The regeneration of Dundee has been well documented, although has focussed very heavily on the waterfront area, and the V and A Museum taking centre stage. However, the importance of smaller developments outside of the centre should not be forgotten. The area has seen a steady flow of new build residential development in recent years and as far as recent planning applications are to go by, there are plans for many future developments. These projects vary by location, affordability and target market, from the traditional family homes seen at the ever-growing Dykes of Gray development to the next phase of Waterfront Flats on Riverside Drive. Further afield there are more affordable projects and this is supported by parallel regeneration by the local council who have set out their 2017-2022 Strategic Housing Investment Plan. The range of projects being delivered means that new build housing becomes accessible to a much greater demographic and with help-to-buy still in existence, first time buyers are also included. This is positive news for the property market and comes with the hope that those seeking a new build home bring their own house to the market and in turn boost the existing stock.
Mortgage Availability and Interest Rates
At the moment, lender confidence is high and mortgages are widely available to most. Mortgage products are also now increasingly available with a 5% deposit which is particularly good news for younger first-time buyers. However, in the current climate we are seeing properties achieving well in excess of their Home Report value which means buyers are having to find the extra cash to purchase the property. People are therefore encouraged to aim for properties within their budget, and use products such as help to buy ISA’s (for first time buyers) to lessen this burden along with support from family, if available.
2017 saw a rise in the Bank of England base rate for the first time since July 2007 from 0.25 to 0.5%. However, it is important to remember that this rise only restored us to the historically low level enjoyed the previous year. Forecasts predict that future rises are not likely to be drastic, with the general consensus being a 0.25% increase in the 2018 spring term, meaning the property market should remain broadly unaffected.
In the Scottish Government budget release in late 2017 it was announced that first time buyers would receive a tax break from LBTT on properties up to £175,000. It’s predicted that this change would benefit around 80% of first time buyers.
In contrast to the above, groans from the buy-to-let industry continue to resound following changes to the Scottish tenancy system late last year. The weight of the burden is set to increase as the government begins to phase in tax relief changes announced in the summer budget of 2015. Landlords at present can claim relief on their mortgage interest payments, however, this benefit is set to be gradually decreased and eventually removed by the 2020-21 tax year.
Whether intentional or not, the Government appears to have created a formula to stimulate first time buyer prominence in the marketplace by bringing in negative changes for buy-to-let landlords who, in response are likely to sell some of their existing properties. Focussing on the Tayside region in particular, buy-to-let properties are typically lower value flats which at present are not selling as well as traditional family homes. The encouragement therefore is that first time buyers will seek out these properties, take advantage of their affordability and take advantage of the fact that they do not typically achieve beyond Home Report value as this of course means they do not have to worry about finding in excess of their 5% deposit.
Despite the possible impact the changes mentioned here may bring, it is likely that we will see more of the same for 2018. Mortgages are widely available and affordable and so buyer demand is unlikely to diminish, propped up by a likely rise in first-time-buyers entering the market before help-to-buy runs out. Demand will surpass the supply of houses on the market in our area and we will likely see further rises to property prices, albeit at a sensible and controlled rate. Prospective sellers should take note of the above and be encouraged to put their property on the market to take advantage of these conditions before the market balance is restored.
If considering selling your home in the Tayside region, or if you would like any further information on the property market, please contact our Dundee office on 01382 200 064 where one of our Surveyors will be more than happy to help.
Graham + Sibbald – Dundee Residential Team