Registers of Scotland report that the average cost of a home in Scotland fell by just over 7% in the first quarter of 2011. Stacks Edinburgh certainly predicted falling prices for this year but there is some surprise that our predicted fall for the year was seen in the first quarter. Price falls in themselves are, of course, not a major reason for worry. We know that prices have been unsustainably and unaffordably high since the boom years and a correction should aid affordability. Falling volume of sales (down 35%) is a more concerning signal to the market’s health. We are of course talking in general terms and recent news stories tell of the rapid rise in the number of £1m plus home s sold in Scotland and that cash buyers represent between 25% and 40% of buyers in some areas of  Scotland.

A divided market then. Cash buyers pushing the better quality properties ahead and first time buyers still struggling to make a move.

Anecdotaly, and contrary to a recent comment by others that “Offers Over in Scotland is Dead”, we have seen more and more properties, typically quality period apartments, coming to the market at “Offers Over” prices.

Over the longer term a purchase now still makes sense in the key Scottish markets and time spent in research and negotiation should produce good results.

Recent monthly and quarterly statistics are beginning to show the price falls that those closest to the market have known about for some time. With the overwhelming trend being price reductions of already marketed stock since late summer this was inevitable and will no doubt continue into 2011. Research from Savills suggests a fall of 1.5% for the prime Scottish market during 2011 and a return to growth from 2012 onwards.

Statistics, of course, always come with a slightly annoying lag or worse, contrive to hide what is actually happening. At a very simple level, for example, the lower and middle markets in Edinburgh could pick up significantly in terms of volumes with even slight growth and the statistics would report that the average price of an Edinburgh property had fallen with more transactions at a lower dragging the average transaction value down. One thing is sure, by the time statistics filter through on price growth solicitors, estate agents and off course buying agents will have been aware of this for some time and will already be advising clients accordingly. Simple advice is to look to transaction numbers rather than average price for the health and future direction of the market.

With no significant thawing of the frozen mortgage market it is a tough time for those requiring debt funding. That said it certainly remains a buyers market for those with the ability to move and those who have bought this year so far are likely to have made a sound move over the medium to long term.

ESPC figures showed the average Edinburgh house price rising 11.2% in the year to the end of August. This is a small (2.8%) fall from the previous month and follows a rise (3.5%) June to July and a fall ( 1.21% ) May to June. Transaction numbers, perhaps a better sign of the markets health, have risen only slightly. There has been a significant increase in the number of properties for sale meaning that supply comfortably now outstrips demand. Purchasers should be driving a hard bargain in those specific areas and sectors where there is a good choice of housing stock.

Stacks own monitoring of the market for properties over £400k saw 317 new properties added in June, 110 in July and 125 during August. A continuing trend during these three months was price reductions from agents which were appearing on a regular basis.

Looking forward, the increase in stock levels and continuing trend to reprice downwards should mean that prices remain subdued for several months to come. Economists report improved economic data and a strengthening labour market, however with looming public sector cuts this seems likely to stall, with a gradual recovery over the next couple of years the most likely scenario. Continuing low interest rate are still playing a fundamental roll in proping up demand and the key measures of affordability are also favourable, albeit supply of mortgage lending is still poor.

The message for the rest of the year must then be, don’t expect anything too dramatic to happen in house prices. Those looking to move should certainly not hold back if they have funding in place.

Whatever your view of the June 22nd Budget, and there is certainly a huge division in viewpoints from Local Authorities and other public sector organisations, to the markets and credit rating agencies, it is clear that some fairly drastic and potentially unpopular action was required.

Attending a Chamber of Commerce Budget Briefing this morning, the general view was “could have been worse!”. Indeed, the rise in CGT could have been greater and the resultant impact on property and other tradeable assets much worse. Behind the main headlines we will see a further tightening of anti avoidance legislation to curb schemes which have been doing the rounds. For a quick view on the impact of the CGT increase the link below to the BBC Business page may prove useful:

http://news.bbc.co.uk/1/hi/business/10384599.stm

Elswhere, the VAT increase does impact us all, consumers and businesses alike. But again, it could have been worse. National Insurance Bands have been altered and some incentives put in place for those starting new businesses and some additional personal alowances. Changes to Corporation Tax, from a simplistic viewpoint should make the UK a more attractive place to start and carry out business but, reductions in capital allowances could counter this for certain sectors.

Back to property, and in terms of using up ones annual CGT allowance property was never the ideal tool to achieve this. Unit sizes are too large and indivisible, unlike individual shares, transactions costs are relatively high and the market relatively illiquid, again compared to shares. Applying the higher rate of tax immediately may seem harsh but avoids a period of frantic selling to crystalise gains, which may have de-stabillised the market in certain types of property.

Finally, and because this is a personal view of the budget, it only remains for me to remind readers that the budget itself and the issues covered are complex and the commentary above certainly does not constitute advice. Please consult your financial adviser on the detailed content of the budget.

Headlines continue to confuse rather than elighten with newspapers talking of booming houseprices while the CML confirm that lending has fallen back (Arpril 2010) and was 6% lower than the first four months of 2009. What is clear, is that the range of mortgage products remains at a fraction of previous levels and LTV of over 75% still scarce. Low interest rates, however, continue to encourage property transactions, and a weak pound is encouraging overseas buyers. Lack of supply of quality properties in sought after locations ensure that some properties are fetching strong premiums. An increase in supply should see the market stabilise over the rest of the year providing a good opportunity tio buy and no reason not to sell.

Statistics suggest Edinburgh house prices have risen by around 12% in the year to March 2010. I suspect few typical Edinburgh homes have actually increased by this much. A glance behing the headlines would reveal that the volume of properties traded remained at around 1/3 of the longer term trend and those properties which did change hands tended to be at the higher end of the Edinburgh market. The value of the average transaction may therfore have risen considerably while the price of any given home could, in theory, be almost static. Statistics certainly have their use but a closer look at property types and area specifics is essential before embarking on any purchase.

Coalition government and CGT
Proposals which could effectively double capital gains tax have been suggested in advance of the coalition governments emergency budget on 22nd June. the proposals remain vague at present but the coalition partners are seeking “…agreement on taxing non-business capital gains at rates similar or close to those applied to income…” It is most likely that whatever changes are proposed will take effect from 6th April 2011, but earlier application cannot be ruled out. The treasury could certainly benefit from a windfall of CGT if transactions are undertaken simply to realise gains at the present rates. The current favourable status of the main residence is not proposed to be altered. These proposals will require some thought for Buy-to-Let investors and second home owners. Any unrealised gains can potentially be managed in the coming months. Anyone concerned should contact their tax advisor.

One slightly novel solution might be to invest more when deciding on your main residence, something Stacks would be delighted to assist you with.

February has, however, seen an increase in market activity. The number of well priced, high quality properties being either fully marketed or quietly discussed is growing daily. There is still an element of re-pricing for some properties which have languished from last year. Perhaps a result of over optimistic pricing in Q3/Q4 last year, or perhaps because the particular properties are simply not perfect. The market is a fairly harsh environment still and a lack of privacy or having too small a garden for the type of property is impacting prices considerably. Vendors certainly need to present their property well to achieve a sale.

Recent press seems to support our December predictions that the market may well remain fairly flat, at least in Scotland, although there are those more optimistic about price rises, suggesting that prices will begin to rise once more around Q3 of 2010. Stability in prices with the worst fears of further falls behind us would indicate a good time to be considering a purchase.

Lack of significant new build housing activity in Edinburgh & The Lothians will continue to put pressure on the existing housing stock, supporting prices. Many developers are making tentative steps back into the market but output will take a long time to catch up on the damage done through 2008 / 2009. Smaller developers picking up a manageable number of plots in good locations, are likely to do well. With sensible pricing and a “fundable” development model i.e. decent cash flow they can benefit from a relative lack of competition.

Finally, interest rates remain low despite increases in inflation. The Bank of England puts this down to weak exchange rates, higher fuel prices and VAT increases and believes the weak pace of the recovery will mean inflation is below target once these factors work through.

As the year closes out figures to end November show that Edinburgh sales volumes were down by over 26% on 2008 figures (November to November).

In a market notable for the greater proportion of “fixed price” or “offers in the region of” as opposed to the more common Scottish “offers over” it is positive to note that more sellers are achieving their fixed price expectation (43% according to ESPC). Partly, this is due to increased competition for good property but also to property arriving on the market realistically priced in the first instance.

From November 2008 to November 2009 the average Edinburgh property price has jumped almost 18%. However, with the average Edinburgh property valued at around £225,000, it is easy to see that in a thin market where turnover is less than half of that in a more “normal” year, this statistic might be relatively meaningless. Activity at the top end of the market, while adding proportionately little in transaction numbers does push the average price up considerably.

It has without doubt been a good year (or perhaps half year) for those operating in Edinburgh prime property. Cash buyers, many from overseas, have sought out and acquired some exceptional homes at prices which will surely represent a sound decision in the years to come. 2010 will surely offer more opportunities of this nature for those willing to get beneath the surface of the market (particularly with the help of a good buyers agent!)

Looking back to the November market comment, I firmly believe 2010 will see some market falls for reasons I won’t repeat here. This re-pricing, however, will present good opportunities to buy for those looking to secure a family home or investment property in Edinburgh and the surrounding areas.

Quarters 2 and 3 of 2009 saw some considerable recovery in house prices according to the main building society indices.  Market supply is low, borrowing is cheap (if you can get it) and the returns from other investments are poor. The amount of house purchases made without mortgages certainly points to investor interest.

2010, then, looks set to be a year of opposing forces.

Exerting upward pressure on prices will be the following key factors:

• Equity buyers chasing limited good stock.
• Lending remains relatively cheap.
• Market is down considerably from its peak presenting buying opportunities.
• Severely diminished output of new build housing.
• Overseas investors are cashing in on the strength of their currencies relative to the £.
• There is a belief that the worst of the market fall is behind us.
• Popular locations and sought after properties remain in demand.

So, there are certainly continuing factors which could put upward pressure on house prices factors into 2010. This, however, is not the whole story. There are a number of factors which point to the recent price rises being a temporary (at least in part) bounce on the path to a much more subdued 2010 and slow recovery thereafter. These are:

• Lending, while cheap, is still difficult to access for many.
• FSA review likely to crack down on interest only loans.
• Recent price rises have been driven by activity at the upper end of the market.
• The economic climate remains fundamentally poor.
• Further job cuts in both public and private sector are a distinct possibility.
• Large overhang of unsold stock in much of the market.
• Recent price rises could see a flood of properties hitting the market in 2010 as “accidental landlords” seize the opportunity to sell.
• Return of stamp duty from £125k will hit first time buyers.
• Election years always bring uncertainty and 2010 will certainly do so.

With these factors, both positive and negative in mind, what lies in store for residential property in 2010?

On balance, I believe increased supply, re-pricing of stock and a fragile economic situation are likely to lead to some further falls in early 2010 and a fairly flat remainder of 2010.

This picture is certainly not all “doom and gloom” as 2010 will prove to be a good buying opportunity in perhaps the best “buyers market” for 10-15 years. In Edinburgh & The Lothians the shortage of good quality family homes in the right areas will continue to protect these from the worst price falls, new build flats will continue to perform worst as investors favour traditional properties in prime locations over new build, homes in sought after commuter towns and villages will attract attention if correctly priced, as many now are and country houses will continue to represent good value compared to the rest of the UK.

Nevertheless, the volume of properties traded in the Edinburgh area market is still significantly down on what would be considered “normal” and the market is some way off recovery to these levels.

Those looking to purchase may find sourcing the right property challenging despite the relatively high level of homes on the market. That said, good properties, sensibly priced can be found throughout the region and with the market at or at least reasonably close to the bottom the remainder of this year and into 2010 will provide an excellent opportunity to purchase.

August data suggest a return to some stability in the market with average house prices in Edinburgh showing an increase of 2.2%, the first year on year growth for 12 months.  Slowly improving mortgage lending is also contributing to increased stability although an improving economic climate remains more elusive.

For those seeking a family home or investment property (or perhaps a holiday / golf retreat in advance of the 2013 Open Championship at Muirfield) now is certainly a good time to begin the search…