Warners Monthly Market Report: December 2017

Activity in the local property market has remained brisk as we head towards the end of 2017. The majority of properties for sale in Edinburgh and the Lothians are attracting strong demand, leading to quick sales and selling prices that are often well in excess of Home Report valuation.

During the three months from September to November, properties sold through Warners achieved an average of 5.6% over and above their Home Report valuation, a substantial increase from the average premium of 2.6% during the same period last year.

Properties are also selling more quickly than they were last year. Properties sold during the last three months have spent an average of just 18 days on the market. That’s down from an average of 21 days for properties sold between September and November in 2016.

Shortage of Stock Driving Market
The figures for the last three months are consistent with what we have seen in the market throughout 2017. Market conditions have favoured sellers leading to quick sales and rising selling prices in most areas.

The main factor driving this has been that there is simply a shortage of properties available on the market. One of the most common things that we hear from people when they are thinking about selling is that they want to hold off putting their own property on the market until they see a property that they want to buy. Unfortunately this means that we have a situation where the supply of properties to the market is held back by a lack of properties for sale, exacerbating the problem for buyers.

Whilst the supply of homes for sale is comparatively low, demand amongst buyers has risen, fuelled by low interest rates and an improving economy. Although the Bank of England increased interest rates for the first time in over a decade last month, mortgage rates are still at incredibly low levels, especially for buyers who have a reasonable deposit in place.

Taxing Time for First-Time Buyers
One of the most headline-grabbing announcements in the Autumn Budget from Westminster was that Stamp Duty would be abolished for most first-time buyers in England, Wales and Northern Ireland. In Scotland, Stamp Duty was replaced by Land & Buildings Transaction Tax (LBTT) in April 2015 and as a result, first-time buyers in Scotland will not benefit from this tax relief.

As we have discussed before, the fact that first-time buyers in Scotland won’t benefit from this tax cut will not have a substantial impact on the property market as a whole. That will be scant consolation though for first-time buyers in Scotland who are purchasing a home for more than £145,000 and therefore miss out on the tax break that their counterparts south of the border are enjoying.

Saving up enough money to cover the upfront costs of buying a home is one of the biggest challenges facing anyone looking to get onto the property ladder. In addition to the deposit needed to secure a mortgage, an allowance also has to be made for legal fees, furniture and moving costs. On top of that, most mortgage lenders will only lend up to the valuation in the Home Report. That means that if you want to offer anything over the valuation to secure a property, you will need to have that additional money available upfront.

Whilst the money that a first-time buyer could save if they didn’t have to pay LBTT is unlikely to be the difference between them being able to afford a property and not, having to pay the tax certainly does not make things any easier.

A More Balanced Market in 2018
As we move into 2018, the expectation at this stage is that we should see a cooling in the market over the next 12 months. In the first instance, the fact that the market has been so favourable for sellers over the last two years will encourage more people to test the water and put their property up for sale, improving the supply of properties to the market.

At the same time, buyer demand is unlikely to be as strong in 2018 as it has been over the last two years. Interest rates are likely to inch up, albeit slowly, pushing up mortgage repayments and reducing buying power.

It is also likely that Brexit will dominate the headlines for a reasonable portion of the coming year. While the reality is that the fundamental economic impact of Brexit – positive or negative – will only materialise over the longer term, in the short-term negotiations are likely to cause a degree of uncertainty, further cooling demand from the high levels we saw in 2016 and 2017.

As a result, annual house price growth in Edinburgh and the Lothians is likely to fall back towards between 2 and 3% as we move towards a more balanced market in 2018.

If you're thinking of buying or selling a property, or if you have any questions about the local market, get in touch with Warners today on 0131 667 0232 and one of our expert team will be delighted to help.