IT’S already hard enough for first-time buyers to find a house they can afford in the Capital – but forecasts suggest the struggle to get on the housing ladder is going to get even worse over the next four years.
One property firm has said house prices in Edinburgh are set to soar by 23.4 per cent between now and 2021.
Owners and sellers will be delighted, however as economists predict wages will remain static for the foreseeable future, many of those who expect to be looking for their first home within the next few years will face a daunting task.
If the forecast rise of 23.4 per cent applied equally across the board, it would mean someone hoping to buy a one-bedroom flat in Leith Walk would have to pay £153,486 in 2021 – almost £30,000 more than the current going price – and a two-bedroom flat at the West End would cost £388,185, an extra £73,610 on top of today’s price.
The forecast of a 23.4 per cent increase – almost double the UK average and four per cent ahead of London – came from property consultancy JLL, which said a lack of new homes being built was a key factor.
Jason Hogg, JLL director of residential and development property, said: “With demand for housing outstripping supply, particularly within Edinburgh city centre, rental and house prices are forecast to outstrip the national average by 2021.”
He said the Capital was an attractive location for businesses and workers, with excellent transport connectivity a good quality of life.
But he warned: “Residential construction activity is being starved of development opportunities, made clear by a lack of cranes across the skyline, suggesting the tide isn’t set to turn dramatically in the next four years.”
The problem is exacerbated by tougher criteria for getting a mortgage since the credit crunch, with regulations tightened and house-buyers only allowed to borrow up to 4.75 times their income, while the maximum mortgage is 95 per cent.
Someone earning £25,000 a year – the average graduate salary in Edinburgh – would therefore only be able to get a mortgage of £118,750.
And if they find themselves paying over the official valuation in the Home Report, they must find the extra themselves on top of whatever deposit they have worked out they can pay.
It adds up to a formidable challenge for young people seeking a home of their own on modest pay.
And there is little prospect of prices coming down or salaries going up in any significant way.
At the end of last year, leading think tank the Institute for Fiscal Studies (IFS) warned that workers across the UK were facing the biggest squeeze on their wages in 70 years.
It forecast that by 2021 people would be earning less in real terms than they did before the 2008 global financial crash.
And just last week, the IFS warned Britain was in the midst of the weakest growth in living standards for at least 60 years, with low-income families faring the worst.
It said incomes for the average family would not grow at all over the next two years.
And by 2021, it calculated average household incomes would be 18 per cent lower than could have been reasonably expected before the crash.
The figures suggest that in four years’ time a childless couple would be about £5900 a year worse off and a couple with two young children would be £8300 poorer.
David Alexander, managing director of city estate agents DJ Alexander, said first-time buyers faced more hurdles than in the past.
“It’s far more difficult to get a mortgage than it has ever been,” he said.
“The criteria are far tougher and you need a substantial deposit. It’s not easy getting on the housing ladder and as prices increases it will become even more difficult.
“That’s why the rental market is so buoyant – there’s nothing else people can do. And people are staying a lot longer at home with their parents.”
He said house price increases would be noticeably different in different sectors of the market.
“We’re very much in a two-tier market. A house that’s worth £200,000 today has every chance of being worth £250,000 in four years’ time.
“But a house that’s worth £1 million now is never going to go up by 23.4 per cent in value in that time.”
He predicted that properties selling for £350,000 and above would see less of an increase and over £1m there was likely to be virtually no movement at all.
“The market at the bottom end is certainly increasing. First-time buyers looking for something between £100,000 and £200,000 are likely to see prices increase – as they have done over the last couple of years.
“The demand is there, but not the supply. Anything we put on the market in that bracket is very popular.”
Edinburgh has seen a number of controversial plans for big housing developments in the green belt. But these are unlikely to make much difference to the picture over the next four years, said Mr Alexander.
“It takes time for homes in new developments to come through and the population is increasing faster than they can build houses,” he said.
Maria Botha-Lopez, business analyst with the Capital’s biggest property marketing company ESPC, believes the Edinburgh housing market is robust. She said: “It weathered the storm of the financial crisis of 2008 in terms of values, but any turmoil in the financial markets, such as the availability of funds or strict lending criteria, will likely constrict the volume of sales, as we saw during that crisis.
“House prices will continue to increase with inflation, and while we see average selling prices in particular areas increasing and decreasing at different rates, these tend to balance out on average.
“However, more housing needs to be made available to take the pressure off the shortage of properties, as supply and demand has a large impact on property affordability.”
She said both property prices and the shortage of housing could be a concern. “This is likely to become a key issue in future election cycles, as property owners have a vested interest in seeing house prices continue to grow, and those not on the property ladder struggle with affordability and availabity.
“With the triggering of Article 50 ahead of us, and with no clear indications on how the negotiations with the EU will turn out, it’s difficult to make predictions for how the next four years will turn out.”
One couple’s frustrations in search for a new home
PHOEBE Bolton, 25, wants to buy her own home in East Lothian with boyfriend Declan Duncan, also 25 – and she fears the longer she waits the more difficult it will become.
“I was living with my parents near Haddington up till about a year ago, then I got a full-time job in town so now I rent off one of my friends who has her own property. Great as it is to live with her, I feel like renting is just burning money, especially if you have some savings and are semi in a position to buy something.
“But getting money together for a deposit when you’re renting and living in town is really difficult.
“I’m hoping to buy with my boyfriend, but it won’t be a joint mortgage. He’s not in a position to buy at the moment.”
She has been offered a mortgage which would see her paying £350 a month. “It’s frustrating because I’m very sensible with my money – I could afford £600 a month, but I’m not being given that opportunity because it’s not secure from their point of view.”
She said properties now selling at £130,000 were going for £80,000 just three years ago.
“It’s really disheartening. Even if you will be ready in a year to buy property you want now, by then they will be more expensive and you will need more money than you have got.
“It’s a vicious circle and it’s never ending. It’s one of the reasons I’m trying to buy now.”