THIS is a tale of two cities. In the first, the Russians are among the minted
— and sometimes world-famous — foreign purchasers of £1 million-plus
properties. The average price per square foot of all homes has risen by 11
per cent over the past year and 173 per cent since 1996, driven by a
scarcity of properties for sale and demand from workers in financial
services.
No, this is not London, but Edinburgh, although the Scottish market’s
performance does rival that of Chelsea, another place the Russians like.
Prices in Scotland are up 7.5 per cent since January and 22.4 per cent over
12 months, according to the Bank of Scotland.
Like everywhere else, the future direction for the market in Edinburgh depends
on a decision being taken in London on May 10 when the Bank of England rules
on interest rates. Scottish homes may be the most affordable in the UK, but
incomes have not kept pace with the growth in values; more expensive
borrowing will dampen the enthusiasm of most buyers — with the exception of
the Russians.
But longer-term prospects could also hang on the outcome of next Thursday’s
Scottish Parliament elections. Success for the Scottish National Party (SNP)
would put independence on the agenda. The SNP believes it can fund public
expenditure if it controls oil tax revenues. But this scheme could be at
risk as North Sea production decreases — which would have implications for
employment, the economy and the housing market.
In our second city, the problem is real estate glut rather than shortage.
There is a growing oversupply of one and two-bedroom flats in the centre of
Liverpool, which is dispiriting news for investors in these properties. The
average price in Liverpool — next year’s European Capital of Culture — may
be 9 per cent higher year-on-year, but some apartments have fallen in value.
Many investors are not receiving enough rent to cover their mortgages; others
are leaving their flats empty. One aim of Liverpool’s construction boom was
to build new communities; but dark, untenanted apartment blocks do not a
friendly innercity neighbourhood make. When Bricks and Mortar raised concerns
about this trend last June, the developers’ PR people got hot under the
collar; they are no longer even trying to put a positive spin on the
situation.
Liverpool’s experience should serve as a lesson to companies involved in any
new home developments planned for this city, and for Edinburgh. If city
centres are to thrive — which is in the interests of everyone (including
investors) — they need families, who are mostly not that keen on
loft-living. It’s a preference that goes beyond regional differences.
HIP, HIP, HOORAY?
Home information packs (Hips) become compulsory for all sellers on June 1. But
even at this late hour, the opposition parties are refusing to see the
scheme as a fait accompli.
Next Thursday a House of Lords committee delivers its views of the Hips
reforms. If these are not flattering, the Conservatives will try to block
the project, which they describe as “expensive and deficient red tape”. The
Royal Institution of Chartered Surveyors (RICS) is even more blunt,
describing the regulations as “impenetrable, unclear and contradictory” and
predicting they will damage the housing market.
The Lib Dems could be the Tories’ allies. The Government, meanwhile, lists the
Energy Saving Trust, Friends of the Earth and the WWF as supporters of the
energy performance certificate (EPC) element of the Hip. Ministers
continue to insist that Hips will be introduced on June 1 and that there are
enough trained inspectors to complete the EPCs.
Homeowners could be forgiven for seeing this row as the premature start of the
silly season. But they will take a very different view if the Government
prevails, Hips go ahead and it emerges that not only are there insufficient
numbers of inspectors but also that Hips paperwork actually slows
transactions. The Government is promoting EPCs as a key antiglobal warming
policy. If ministers suspect the plan is half-baked (for this will be the
headline if anything goes wrong), they must make concessions now.
ONE RISE IS ENOUGH
The expectation that interest rates will rise again next month is so
widespread that the focus of speculation is now whether the Bank of England
will think one increase enough. It could conclude that two are necessary.
But the latest Nationwide survey, which shows prices accelerating this
month, gives warning that two upward moves could destablise the market, as
it would put pressure on borrowers with tracker mortgage deals that vary
with the base rate.
I think, however, that the Bank will be less inclined towards a second
increase if it studies the fine detail of Nationwide’s other findings, which
suggest that demand is slowing in most places. Part of the fascination with
the boom in spots such as Central London stems from the reason that things
are pretty quiet in many locations.
Anne
not the BoE mandate to keep stability of housing market. They focus only on keeping the CPI-measured inflation (excluding cost of housing) under control.
Sorry to tell you that Mervyn & Co will not bail the house market out this time!
Just brace yourself and wait for the crash!
Best
Michele, Richmond, UK