You wait ages for some news and then two interesting new reports come out at once.
Although they were issued by two very different organisations (Registers of Scotland and The Bank of England) when you put them together, they give an interesting insight into what is happening in the property market.
First up is the review of the last 10 years in the Scottish property market issued by Registers of Scotland. You can find the report here.
The obvious thing to take away from the report is that averages are no guide to what has happened to the value of your home. Prices in Scotland over the last 10 years are up, the report says, by 32%. But in Glasgow, the increase is just 6% while in Aberdeen it is 83% (see graph).
The more interesting point, however, is that the number of transactions is down by over a third over the last decade. Even in areas where prices have risen sharply, volume of sales are down by as much as 50% compared to 2005 (see graph). For more detail, you can see the number of transactions per month in Scotland from 2003 onwards here.
The question is why? And here the Bank of England report might help. The Bank’s latest stats on Mortgage Lenders and Administrators show that overall lending is markedly lower post-recession. Approvals to buy a home (rather than re-mortgage) fell by almost 38% between 2007 and 2014.
In short, the decline in lending almost exactly mirrors the decline in transactions.
Perhaps understandably, lenders today are significantly more risk averse than they were. You can see this most clearly in the figures for lending at more than 90% loan to value. Eight years ago, around 14% of all mortgages issued were for purchases where the loan made up 90% or more of the house price. By the start of this year, 90% loan to value mortgages accounted for just over 3% of all loans issued (see graph).
Yet it is this group; first time buyers, people trading up to family homes, people with little capital but perfectly good jobs, who drive the market. Throttling back on mortgages at over 90% loan to value locks them out of the market and affects everyone else who aspires to move.
Of course, no-one wants to return to the cavalier days of 110% mortgages, but the evidence today is that mortgage lending is not risky. Indeed, the number of mortgages in arrears is lower today than it was in the heyday of 2007 (see graph).
Yes, interest rates will rise at some point and yes that will have an impact on household budgets. But the latest City consensus is that base rates will only reach 1.4% in three years’ time (see graph).
In other words, the City expects interest rates to rise by just 0.9% by the middle of 2018. And the ‘spread’ – the difference between base rates and the interest rate charged on a mortgage – has been falling steadily for some time, so even that increase may not feed through in its entirety to mortgage interest rates.
In short, the risk aversion of lenders and the increasingly tough rules set by the Bank of England are locking some perfectly credit-worthy buyers out of home ownership and making life more difficult for everyone who is already a home owner. The property market will only return to proper health when regulators and banks take a more common-sense approach.