Regional home truths
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The housing markets in Scotland, Wales and Northern Ireland are as subdued as in England, but initiatives are afoot to boost sales, particularly among first-time buyers
When the UK housing market is referred to in the media it’s often in relation to an average house price that is massively distorted by values in London and the South-East.
As a result such broad-brush averages can have little relevance to those working in the regions of Scotland, Wales and Northern Ireland. While we might all speak the same language, have the same currency and share the same monarch, individual housing markets can differ radically.
So this week Mortgage Strategy has taken a whistlestop tour of the three regions to find out how brokers and the regional markets they operate in are faring.
Each region’s mortgage sector has tackled the problems being thrown at it in its own way, with the launch of first-time buyer deals, housing initiatives and government schemes. But has this trickled down to the market and the day-to-day experiences of consumers, estate agents and brokers? We spoke to those at the mortgage coalface to find out how they’re surviving, and thriving in some cases, in the current environment.
Scotland
The latest figures from the Council of Mortgage Lenders Scotland paint a rosy picture of the mortgage market in Scotland, showing house purchase lending rose by more than the UK as a whole in Q2 2011.
Some 11,300 loans for house purchase, worth £1.3bn, were taken out in Q2 - a rise of 36% in number and 42% in value from Q1. But the number and value of loans still remain historically low. At its peak mortgage lending in Scotland was almost triple the amount it is today, reaching £3.3bn in Q3 2007.
But John Perkin, financial services director at Slater Hogg & Howison, one of Scotland’s largest estate agency businesses, says the area has been hard hit by the downturn and that the lending figures hide what is really going on at street level.
“About 10% to 15% fewer houses will be sold this year compared with 2010, and as a result my mortgage business is flat,” he says.
The Scottish home-buying system differs from the UK greatly in that a solicitor makes an offer on the buyer’s behalf and once accepted, it becomes legally binding. Lenders also need their own legal resources to complete deals, which has deterred a number of smaller ones from entering the sector.
“New entrants such as Aldermore and Kensington only offer their mortgages to brokers south of the border which I expect is due to the different legal system and not being able to justify the cost with the amount of lending they would do in Scotland,” says Kennedy Foster, policy consultant for CML Scotland.
The average house price in Scotland is £153,820, significantly lower than the UK at £228,095. The market also works in favour of first-time buyers, with Scotland boasting some of the lowest prices to be found anywhere in the UK.
The geography of Scotland means the mortgage sector is made up of small brokers who cater for their local markets. In some areas such as North Lanarkshire, the average house price is only £111,575. So it is not surprising that in these areas the average age of first-time buyers is lower than in the rest of the UK.
Some of the youngest buyers are in areas such as Clackmannanshire, Fife, North Lanarkshire, Falkirk, West Lothian and East Dunbartonshire with an average age of 28.
“Things are a lot smaller in Scotland, our average mortgage is only £102,000 and we sell a lot of property that is worth less than £100,000,” says Perkin.
In June this year the Scottish government launched a mortgage indemnity scheme to help first-time buyers get on the property ladder. It has awarded house-building industry body Homes for Scotland £250,000 to work with lenders and builders to take the proposals forward. The government hopes the body will develop an indemnity scheme that will result in higher LTV mortgages being available to those who can afford them.
“It will be interesting to see what the take-up of the scheme will be,” says Foster. “I believe the government is quite far down the line with its plans. It should help the new-build sector in Scotland, but will do little to help existing home owners wanting to move.”
He says despite the low average prices in some areas, it can still take up to one year to sell properties for first-time buyers.
Scotland is starting to see the effects of the introduction of Home Reports in 2008. The reports are mandatory and contain three documents - a single survey, an energy report and a property questionnaire. But recent research by the government shows properties are taking longer to sell because of the time it takes to compile the reports. And the valuation included in the Home Report is not accepted by lenders if it is more than three months old.
“The Home Report has added around £1,000 to the costs of putting a property up for sale,” says Perkin.
A recent report by the Royal Institution of Chartered Surveyors predicts that Scottish housing will remain subdued well into next year.
Surveyors in Scotland were asked why they felt sales continue to be subdued. Around 89% said it was due to the general economic uncertainty, while 79% felt a lack of mortgage finance was affecting transactions. This seems to be borne out in the number of first-time buyers still struggling to get a foot on the property ladder.
Looking ahead, surveyors expect the number of sales to decline over the coming months and as a result suggest that house prices will also dip as supply outweighs demand.
“Scottish buyers are worrying about the economy and whether they can afford a mortgage,” says Graeme Hartley, director at RICS Scotland.
“So they are unwilling to make what is probably the biggest purchase of their life until there is stability. But until first-time buyers take the plunge, the rest of the market will move slowly.”
Wales
Outside the north-east of England, Wales has seen the biggest fall in house prices in the past 12 months out of all UK regions, with the average value now £148,787, about 5.8% lower than the previous year. It has been one of the hardest hit areas due to the rapid rise in house prices in the years prior to the credit crunch. In 2004 some areas such as Gwynedd reported house price increases of 57% on a yearly basis.
In contrast, areas such as Blaenau Gwent are now seeing drops of 20% year-on-year, according to the Land Registry.
Gross mortgage lending has also been in the doldrums since the beginning of 2008. In Q2 2011, gross lending amounted to just £365m, down from its peak of £1.5bn in the latter part of 2006.
In August local building society Principality launched a 95% LTV first-time buyer mortgage deal that allows family members to use their savings to secure the mortgage of their child or relative.
The first-time buyer deposit, which can be a minimum of 5%, together with the family savings must add up to 25% of the property value.
The society only saw a small decrease in its gross mortgage lending in the first six months of the year compared to 2010. Principality’s gross mortgage lending fell by 4% in the first six months of this year compared with the first half of 2010.
The society reported lending of £456.2m for the first half of this year, compared to £475.6 for the same period in 2010.
But, Swansea Building Society increased its gross mortgage lending to £32.6m in 2010, up from £26m in 2009.
Although the societies offer their products nationwide, they are often favoured by local brokers.
“Local societies have first-hand knowledge of the Welsh market and Swansea doesn’t credit score,” says Chris Davies, principal at First Financial Solutions, which is based in Swansea. “It just looks at the client’s credit report, so in some situations can make better judgements on cases.”
He estimates that 10% of his mortgage business is placed through Principality and Swansea.
Falling house prices present an opportunity for those first-time buyers who can save a deposit. The average age of a borrower has stayed roughly the same for the past four years at 35, with the average LTV at 75% and consumers borrowing 2.79 x their income.
In September Conwy Council agreed a scheme to provide a £1m fund to help first-time buyers. The scheme allows first-time buyers who cannot afford to a 20% deposit to get a council-provided indemnity for a fixed period of up to five years. The maximum value of the properties qualifying for the scheme is £140,000, meaning borrowers could buy with a deposit of less than £10,000.
“Housing can be cheap in certain areas so in some ways it is a bit easier for first-time buyers here compared with other UK regions,” says Davies.
Some 10% of the Welsh population were in the private rented sector in 2010 and there is still huge demand for affordable housing which has led the government to create its own housing law.
In May this year the Welsh Assembly passed the Housing (Wales) Measure 2011 which separates its housing law from that of the rest of the UK. One of the main thrusts of the new law allows Welsh councils to ban the use of Right to Buy in local areas where there is an undersupply of affordable housing.
“A lot of first-time buyers are trying to find ways to buy their first home,” says Martin Rivers, director of CBK Wales. “Over the years local authorities have sold off their housing stock via Right to Buy and now they can’t house people because they don’t have the stock, so limiting Right to Buy means there will be more social housing available.”
A lack of homes being built is also constraining the market further, with RICS reporting that home owners would rather stay put until the economy starts to pick up.
Northern Ireland
House prices in Northern Ireland have been on a roller coaster ride in recent years and are only now starting see signs of stabilising.
In just four years the average price has fallen from £227,970 in Q3 2007 to £110,723 in Q3 2011. In 2007 house prices were increasing by almost 60% annually and house prices were catching up with those of London and the South-East.
In terms of gross lending, just £199m was carried out in Q2 2011, compared with £1.1bn at the peak of the market in Q2 2006. And because of fluctuating house prices the Financial Services Authority estimates that around 11% of all properties in Northern Ireland are in negative equity - more than twice the UK average of 5.2%. On top of this, unemployment continues to rise, currently standing at 7.4% of the population.
“The market is probably the toughest it has ever been,” says Sean Curran, mortgage adviser at Omagh-based The Mortgage Man. “We have seen a lot of enquires in the past few weeks but these are not transforming into mortgages. House prices are still going down here so lenders are not keen to lend until prices start to bottom out.”
But the latest quarterly forecast from Northern Bank shows that in many parts of the region prices have corrected significantly and mortgage availability has improved suggesting a better climate for purchasers, especially first-time buyers.
“Houses are selling but at much lower prices than seen for seven or eight years,” says Tom McClelland, a Northern Irish specialist at RICS. “Sellers who understand and accept where the market is are being successful and are finding buyers. The emphasis is on setting the right price.”
There was general improvement in the market in September after a difficult August, however, average prices continued to fall. A survey from RICS and Ulster Bank last month show expectations of what will happen with transactions in the three months ahead have also improved marginally. The percentage of chartered surveyors saying transaction levels will rise in the next three months minus the percentage saying that transaction levels will fall, has gone from zero in August to +8 in September.
“We have seen a steady increase in business in recent weeks from those seeking to remortgage, buy for the first time or trade up,” says Derek Wilson, head of lending products at Ulster Bank.
But a number of English lenders are still reluctant to lend in Northern Ireland.
“Confidence in the housing market is at an all-time low and there are a lot of repossessions every week,” says Curran.
The weak market and the cost of expanding into the region has deterred some lenders. Kensington is one lender that has not branched out into Northern Ireland.
“Kensington has taken a cautious approach to expanding its business since returning to mortgage lending at the end of 2009, involving controlled distribution through selected intermediary partners in England and Wales,” says a spokesman for Kensington.
“Expansion into Scotland is under consideration although we need to ensure we can offer consistency of service to intermediaries before we commit to this region. Kensington has never lent in Northern Ireland, has no historical knowledge of the area or related risks, and therefore has no plans to expand into this territory.”
Like Scotland and Wales though, Northern Ireland also has its own lenders. Northern Bank, which only lends to residents in the region, offers 10 products up to 100% LTV.
They are only available direct but have continued to be offered throughout the downturn.
And in October, Nelson McCausland, social development minister in Northern Ireland, announced a £3.25m scheme to help first-time buyers get on the property ladder. It is estimated the pilot scheme, initially running to the end of March next year, will assist around 100 prospective home owners.
Under the initiative, purchasers with a 5% deposit will be able to afford a new-build home if they can obtain a 75% mortgage. The remaining 20% will be financed by Co-Ownership Housing, which administers the scheme. Properties with a value up to a maximum of £175,000 will be available for purchase through FirstBuyNI.
Despite the challenges, consumers in Northern Ireland still have a strong appetite for home ownership, according to CML research.
“Although co-ownership is meeting the needs of lower income households wishing to access owner-occupation, greater awareness and action is needed to meet the demands of other types of households not able to enter the housing market,” says a spokesman for CML Northern Ireland.
So a gloomy economy and job cuts continue to dog the Northern Irish, Welsh and Scottish housing markets. Each region has its own answer to what can be done to address the issues, but unfortunately it seems that these three regions are plagued with the same issues as England when it comes to the housing and mortgage markets.
John Lloyd, Head of Sales and Development, Scottish Building Society
Tough months ahead in Scotland
Mortgage enquiries in Scotland have increased slightly over the past couple of months, partly due to the fantastic mortgage deals being offered. Fixed rates are the best we have seen for years, which has encouraged some previously reluctant remortgage customers to fix their deals.
With the base rate looking unlikely to rise for at least the next 12 months, discounted variable rates and trackers are still selling well.
It was interesting to note that some lenders increased their tracker rates last month. Bank of Scotland and The Mortgage Business putting up their SVR slightly did not go down well with customers tied to self-cert deals with brands that no longer trade.
Data from the October Scottish Housing Review shows the financial crisis hit transaction levels more than prices. Registers of Scotland show sales of 155,200 in 2007, which dropped by more than half to 74,500 in 2010. Surveyors in Scotland are split, with some seeing slight price increases, but a lot noting prices have fallen in the three months to September.
It is anticipated that this fall may continue as we get into the winter months. Sales are happening, but only for sellers pricing their properties realistically as it’s still a buyer’s market.
New-builds were making an impact earlier in the year, but builders’ incentives are now drying up as we approach the year-end and a lot of sales are now based on part-exchange deals.
Scottish government statistics show a 4% fall in the new-build social sector completions in the year compared with the previous year.
Local authority completions are up to 583 - a rise of 199 on previous year, with housing association starts in the year down by 33%.
The government recently injected another £4.7m into the Open Market Shared Equity Scheme. This takes the government funding total to £9.4m, which will help another 250 people buy their first home.
Buy-to-let is probably the only sector growing at any pace at the moment. With the demand for more rental properties and the better yields available to investors, it’s proving popular.
The downside is that most lenders have rigid guidelines on the number of properties held by an individual, which means no opportunity for large portfolios.
In Scotland, the cold snap is coming and the market is cooling down accordingly. We expect a fairly tough couple of months for new applications as people turn their attention to the festive season and coping with the winter weather. Hopefully our strong pipelines we see us all through to the finish.
Christopher Johnson, Mortgage Product Manager, Principality Building Society
Wales is open for business but market prognosis is on the downside
When it comes to the housing and mortgage markets, the picture in Wales is similar to that of the rest of the UK. Mortgage lending remains subdued, albeit levels are holding up when compared with last year. Funding is still in short supply and tightened criteria has restricted access for many would-be home owners. First-time buyers especially have been at the sharp end of this.
But the outlook remains challenging and the sector is bracing itself for tougher times ahead. The economy has a historically high level of dependence on public sector jobs.
Indeed government spending in Wales accounts for some 70% of Welsh gross domestic product. So any acceleration in the rate of government and public sector cuts has the potential to hit the housing market much harder, particularly given the direct correlation between high unemployment and high levels of mortgage repossessions as evidenced by Shelter Cymru research.
In the meantime manufacturing and private business will be critical in shoring up the shortfall from further public sector job losses. While over the past decade manufacturing in Wales has contracted, the industry has historically enjoyed a strong performance, which points to a real opportunity for growth. The Welsh Assembly has made it clear that Wales is open for business and five enterprise zones have been set up for different industries with the aim of attracting businesses and creating further jobs.
All things considered, while the market has proved resilient so far, the prognosis remains on the downside. Akin with the UK, the market here has experienced a structural shift with home ownership declining and increasing numbers of families electing to rent.
All housing stakeholders face the challenge of not only improving the flow of mortgages, but also thinking laterally about bringing new investment into housing to address the shortage of homes. The recently launched Welsh Housing Partnership is just one example of stakeholders working to provide innovative solutions.
The Made in Wales solution highlights the benefits of devolved government in prioritising the challenges of the region and all parties are committed to upscaling such initiatives and developing more.
There is also evidence of several local authorities considering entering the Local Authority Mortgage Scheme and the Welsh government is reviewing the merits of supporting a house builder/ lender initiative - both schemes are aimed at galvanising the first-time buyer market.
Wales has a demonstrable track record of performance through difficult times and policy makers are keen to evidence a fleet of foot response armed with some additional powers through devolution.
Northern Irish trends
Purchase activity
- In 2010, there were 9,700 loans for house purchase in Northern Ireland, 2% up on 2009 and 26% up on 2008, but a long way down from pre-credit crunch levels.
- The UK as a whole experienced a 5% rise in house purchase activity in 2010 following 2009’s lowest number of house purchase loans since 1974.
- In Q1 2011 there were 1,700 loans for house purchase in Northern Ireland. This was down 23% both from the previous quarter and from Q1 2010. The UK as a whole experienced a steeper 26% decline in Q1, but a less pronounced 15% decrease from Q1 2010.
House purchase lending - Northern Ireland vs UK, 000s of loans
House prices
- Northern Ireland’s rapid house price rise that ended in 2007 led to a much sharper drop than the rest of the UK and it continued into 2010, with house prices ending the year at £148,496.
- In Q1 2011 the average house price in Northern Ireland was £145,906, a 15% decline from £171,402 in the same period of 2010, and 41% down on the highest point in Q3 2007, just before the financial crisis hit.
Annual house price growth (%) - Northern Ireland vs UK
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Readers' comments (1)
Dan McGeehan | 7 Nov 2011 4:55 pm
Once you complete missives in Scotland it becomes legally binding not once the offer is accepted as detailed in the article.
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