Tough climate pricing out first-time buyers, experts warn

First-time buyers are being "priced out" of the housing market, warn experts. Picture: Jane Barlow
First-time buyers are being "priced out" of the housing market, warn experts. Picture: Jane Barlow
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A PERFECT storm of conditions in Edinburgh’s booming housing market is pricing out first-time buyers, experts have warned.

Surging rents eating up deposit savings, competition from rampant buy-to-let investors and prohibitive tax changes are all contributing.

With supply of housing desperately trying to catch up with demand, it all adds up to one and two-bedroom flats on buyer hot-spots selling for up to £86,000 above home report values.

“It is an immensely difficult time for first-time buyers who do not have financial help from their parents,” Richard Loudon, from New Town-based Simpson & Marwick estate agents, said.

“These are the toughest conditions in Edinburgh since before the recession.”

Prices of one-bedroom flats in popular suburbs including Meadowbank, Leith, Tollcross and Gorgie ballooned 17 per cent in the past year.

Many now fetch above £175,000 and so land and buildings transaction tax (LBTT) – the Scottish stamp duty – is payable, meaning an extra burden for buyers.

But the Scottish Government said raising the threshold to £175,000 had helped around 12,000 buyers a year.

“Scottish house prices remain significantly more affordable than elsewhere in the UK,” housing minister Kevin Stewart said.

“Since 2007, more than 28,000 households have been helped into home ownership through our various schemes.”

Elsewhere is evidence of the pressure on first-time buyers growing ever greater.

A study by Bank of Scotland last week revealed just over a third (37 per cent) of 25 to 34-year-olds now own their own home.

This compared to more than half (54 per cent) 20 years ago.

Demand continuing to outstrip supply has meanwhile led to 95 per cent of “starter flats” now going to a closing date, according to some estate agents.

Research conducted by Knight Frank found the number of Capital homes up for sale was 16 per cent down on last year.

Some have blamed the LBTT for contributing to market stagnation as levy-aware sellers of the city’s most expensive homes stay put.

But even prices in cheaper areas are rising fast, with research by the ESPC property agency showing one-bed flats attracting up to 60 offers.

Estate agents also report starter flats selling for tens of thousands of pounds over their values.

And the fewer people who are able to buy homes means more pressure on the rental market, with rents rising for eight consecutive years, according to online lettings portal Citylets.

Tenants are now paying an average of £1,062 a month in the Capital, with one-bedroom flats costing £740.

Available rented properties have fallen steadily over the past five years, while spiralling rents leave fewer savings for deposits. Many struggle to afford a home at all.

Housing charity Shelter Scotland helped more than 21,000 people last year, with the single most common issue being rent costs.

The charity’s head of communications and policy, Adam Lang, labelled monthly rents “completely unaffordable” to those on lower incomes.

“A vital part of the solution is the building of affordable housing for social rent in places where people want to live, so there are more choices for people,” he said.

“Only 15 per cent of all homes in Edinburgh are socially rented.

“This is lower than the Scottish average of 23 per cent.

“Prioritising development of housing for social rent will help those in urgent need of this type of housing and take pressure off the wider housing market.”

The Tories’ housing spokesman, Graham Simpson, said councils can apply for rent pressure zones (RPZ) to limit hikes in tenancy charges.

“Rents are high in Edinburgh, almost at unaffordable levels,” he said.

“This impacts on the ability to save for a deposit.”

Private landlords can only raise rents once a year, but are free to do so by as much as they please – unless an RPZ is in place.

City housing convenor Kate Campbell said: “We are already working with the Scottish government and other local authorities to make sure we have an agreed methodology for collecting data and we’ve already commissioned research to get a better understanding of rent levels as they are just now.

“We recognise the impact high rents are having across the city and we know that we have to act.”

andy.shipley@edinburghnews.com