Andrew Stephen: Now it’s a whole new ball game for first-time buyers

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Andrew Stephen looks to the Capital’s two football clubs and notes some striking parallels with the starter homes market

That old cliché about football being a game of two halves has perhaps never been quite as true as it is today for supporters in the Capital.

While the sun is shining on one side of life in both Leith and Gorgie, there are some dark clouds hanging over the other.

Hibs are in fine fettle financially compared with their Edinburgh rivals but their squad has been, to put it kindly, “not getting the results”. Hearts, on the other hand, are working wonders on the pitch, but the club’s multi- millionaire owner seems to have a problem paying the players’ wages.

This stark contradiction is something both sets of fans are growing used to living with.

But it also reflects quite neatly the dichotomy at the heart of the city’s housing market for first-time buyers.

For several generations, the residential areas around Gorgie Road and Easter Road have provided the first rung on the ladder of home ownership in the Capital. Today, the situation is no longer so straightforward.

While there is no shortage of young people still willing and eager to buy their first property in either Gorgie or Easter Road (or their warrens of side streets), and plenty of current owner-occupiers prepared to sell, circumstances beyond their control are stopping them coming together.

Both Gorgie Road and Easter Road have a long tradition of attracting first-time buyers, who are drawn by competitive prices and thriving neighbourhoods with plenty of shops and services.

That is part of Gorgie’s popularity, as well as its convenience for Haymarket station, while Easter Road remains first choice among many first-time buyers born and raised in nearby Leith and other parts of north-east Edinburgh.

The popularity of the two locations among house-buyers came to a head when the average price of a one- bedroom flat peaked at £127,213 in Gorgie/Dalry in the first quarter of 2008 and at £130,921 in Easter Road/Leith Walk in the following quarter.

In the final quarter of 2011, the average price for the same type of property – in both locations – was under £97,000.

In terms of size and value, the typical Gorgie or Easter Road flat may be fairly insignificant but its current fortunes show why the wider market is not performing to its full potential.

The first-time buyer is inhibited by the demands of lenders for substantial deposits (usually around 20 per cent).

This, in turn, is preventing current owners from trading up to larger flats in locations such as Marchmont or Comely Bank, inevitably affecting the abilities of people living in the latter to also move up – say to a house with a garden. While this phenomenon does not ripple out as far as high-end properties – districts such as Murrayfield or The Grange still tend to attract buyers whatever the circumstances elsewhere – huge swathes of the Capital’s middle market are indirectly dependent on what happens on Gorgie Road and Easter Road.

Until lending restrictions are eased, sales in both districts will remain slow and an average increase in prices during 2012 is inconceivable.

A growing interest among investment buyers provides one beacon of hope, but that can prove a double-edged sword. These purchasers are looking for rock-bottom prices, which is why they tend to concentrate on repossessions and executry house sales (after the owner has died).

They might consider buying properties currently in owner-occupation but the price must meet very strict criteria, which also involves issues – of no direct bearing on the seller – such as rental yield and interest rates.

More positively, this means that by dropping their price even by just a few hundred pounds, the seller might give the investment buyer the minimum percentage “return” he requires.

Owners in these districts wishing to trade up do have the option of renting out rather than selling. Demand for starter homes in Gorgie Road and Easter Road remains as strong as ever but is now being led by people wanting to rent – either through choice or having been refused a mortgage – so the chances of securing a good tenant at a reasonable rent are extremely high.

The downside is that any equity tied up in the property cannot be released and used as a deposit on the second purchase. But, with the prices of larger flats in highly popular areas such as Bruntsfield and Marchmont lower than five years ago, a marvellous opportunity exists for anyone able to raise a sufficient deposit, perhaps through a loan from a parent or other close relative. In reality, most of those itching to trade up from Gorgie or Easter Roads will have no alternative but to sit tight until lenders take a more flexible attitude towards first-time buyers – the sector that traditionally generates the market.

The 64,000 dollar question is, of course: “How long will it take?” At a guess, full market recovery might be five or more years away – equal to the last time Hearts held a procession along Gorgie Road with the Scottish Cup, in 2006. Hopefully, a similar comparison with Hibs will never be necessary – as they, of course, last won the cup in 1902.

• Andrew Stephen is head of property at Murray Beith Murray – and an Aberdeen supporter.