News Review: Scotland


Build new homes and they will come


by Stuart Pender, partner, Lomond Capital


We have heard much over these past weeks of the phenomenon “generation rent” where a generation of prospective homeowners are prevented by a combination of economic circumstances and lending intransigence by banks from getting onto the housing ladder and are therefore condemned to a life of renting. nowhere in the uK more


than in Scotland does this premise hold to be true and nowhere more so than in the capital edinburgh where the upward pressure on rents continues apace. this is set against a rather


counter-intuitive backdrop of a stalling or lowering of house prices nationwide. the latest Scottish house price monitor from Lloyds tSB Scotland reveals that house prices here are now almost identical to those of four years ago. in the three months ending in april, the average price index for domestic property in Scotland fell by 3.6%, and the number of sales is continuing to fall – 18% down on the same quarter last year. the fact that rental yields


have remained high against a backdrop of falling house prices suggests a rather severe and ongoing recession and a widening of the gulf between those already on the housing ladder with equity in their home and those eager to join the property owning democracy but restricted due


to poor economic outlook, access to capital or reluctant lenders – or a combination of all three. and this is a trend that is


set to continue according to the latest research from the association of residential Letting agents. Looking at a uK-wide picture, it predicts that demand for rental property will continue to outstrip supply for much of this year and into next.


“It’s just a matter of


building those good quality properties to meet the demand”


arLa operations


director, ian Potter, says: “research shows 41% of young low-to-middle earners live in privately rented accommodation compared with 14% in 1988. this trend looks set to continue while mortgages are so hard to come by and the capital barriers to home ownership appear so entrenched.” is this such a bad thing?


there is an argument that says that young people are misguided in wanting to put down roots so quickly. it restricts movement in a volatile job market and over stretches the purse strings when they have not yet reached the peak of their earning potential. after all, most of europe’s population seems to embrace the renting experience allowing them to enjoy a better quality of life.


Continental style germany for example, has a high proportion of renters and it has been many years since the country experienced a boom in house prices. over the past 10 years uK residential property prices have nearly doubled, in germany they have risen a mere 3%. So what keeps prices down,


and why don’t more germans buy? Firstly, there is the supply of good quality rental accommodation. in Berlin the rental property share is an incredible 90% of the total residential market, which obviously keeps prices down; even in prosperous Hamburg the rental market is nearly 80%. Stringent


lending


requirements also ensure there isn’t an oversupply of housing finance available. Lenders are risk-averse and normally require a deposit of 20% or substantial collateral and proof of good earnings over several years, which for many would-be buyers is impossible. Britain is becoming more


like europe where renting will be seen as the norm whether it likes it or not. But unlike in germany, the quality of the private rental housing stock is very variable. this provides a huge


opportunity for buy-to-let investors and the building trade. as Kevin costner said in


Field of dreams – “if you build it they will come.” at a time when half a dozen


building firms have just been suspended from bidding for Housing association contracts in northern ireland


because of poor build quality, it seems obvious that people will be queuing up to rent good quality accommodation at a premium for the foreseeable future. it’s just a matter of building those good quality properties to meet the demand.


Buy-to-let For landlords looking to buy properties to let, the outlook is much better than it has been for some time. new lenders entered the market last year increasing competition with established players like Paragon mortgages, which having been mothballed is now back actively trading. other lenders can be


expected to ride the wave of positive expectations where an easing of lending criteria coupled with low fee deals and other incentives such as free valuation and no legal costs are already enticing more would-be landlords to take the plunge. annual returns on property investment are now more attractive than many alternative forms of investment and many investors see now as the ideal time to build property portfolios. of course securing a


suitable buy-to-let property is only half the battle – you need a suitable tenant to complete equation. that’s where a licensed letting agency comes into its own. a good agent can supply and manage reliable tenants in a professional and cost-efficient manner. after all, who needs steady income if it is coupled with the ceaseless inconvenience that a demanding and unreliable tenant may bring.


mortgage introducer JULY 2011 27


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