HAVING enjoyed years in the sunshine, there can be little doubt that the housing market is now having to take shelter from the storm that has hit it.
Edinburgh has enjoyed such growth in the last decade or so that first-time buyers have found themselves priced out of the market. So it would normally be the case that a drop in house prices – or at least a reduction in the levels of growth – would b
e welcomed by those desperately trying to make that first step.
Yet despite the housing slowdown, first-time buyers are finding themselves more excluded from the housing market than ever before. The credit crunch – and the tightening up of lending by banks and building societies – has changed the face of the market.
Only a year ago, banks were throwing money at buyers, even those just out of university. It was common on the high street for someone just graduated to pick up a mortgage up to 125 per cent.
But a lot has happened in the last year and now most banks have scaled back their mortgage lending to around the 90 per cent level – and even at that they are being more selective about who they lend to.
So to buy a house worth £150,000, the majority of buyers are having to scramble together £15,000 as a deposit. On top of that, you have to come up with solicitor and surveyor fees, insurance, removal costs and, most pertinently, stamp duty.
The combined costs run into several thousand pounds and, on top of that hefty deposit, there can be little doubt that it is proving too much for some. Many regard it simply as a "stealth tax" on wealth as it can be argued the Government does nothing in return.
Now, in a bid to get the property market moving again, the Government is to introduce a range of measures, expected to include either eradicating stamp duty or allowing buyers to pay it later.
It would mean that, for that £150,000 home, a buyer's expenses would reduce by £1500.
The Home Builders Federation has said that such a policy would "invigorate" the housing market, and cause more people to buy property. And Neil Harrison, marketing manager at the Edinburgh Chamber of Commerce, believes the move could cause a significant "trickle down" effect. He said: "Anything that makes it more cost effective to buy property, such as removing or delaying stamp duty, will provide a benefit for the market.
"It is more about bringing first-time buyers into the market. We need people who are not restricted by wanting to sell before they buy.
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Despite any benefits, what is clear is that the withdrawal of stamp duty would result in a big hit for Government coffers. It is paid at a rate of one per cent for homes between £125,001 and £250,000, then three per cent at £250,001-£500,000, and four per cent for over £500,001.
In total, the proceeds of stamp duty were worth £6.5 billion to the Government in 2006-7, leading to fears that axing it would plunge public finances into the red.
But Ron Hewitt, chief executive of the Edinburgh Chamber of Commerce, said the impact would be much wider than merely a boost to house sales. "There are no structural faults to the Scottish economy. There is pressure from the banks to pull in lending and it is meaning they are lending less at higher prices.
"But the effect of the housing market problems is creating a negative atmosphere and a lack of confidence in the whole economy.
"Exports are rising in Scotland and we have high employment. But the housing rust spot is driving through the rest of the economy. If you can start to get house sales moving it will free up all sorts of things. People currently don't want to sell or buy anything of high value because houses are not being bought or sold. So changes to stamp duty could have an impact on the whole economy."
Despite this, there is a question about who stamp duty relief would be aimed at. As it is currently only the purchasers of homes over the value of £125,000 that are charged stamp duty, there is a large chunk of the first-time buyer market, especially those looking for one-bed flats, who will not be affected by its withdrawal.
And, for Craig Esplin, a financial adviser at Fair Deal Mortgages, stamp duty is far from the main factor slowing sales. "For some people, it will help, but it certainly won't kick-start the mortgage market because the problem is the lack of lending.
"It won't give a massive boost for first-time buyers because they still need a massive deposit for a mortgage. The problem lies with funding, banks not having the funds and not being willing to release funds to the public.
"First-time buyers are frantically going to parents and trying to save up that five per cent or ten per cent (deposit]. Stamp duty won't make it much easier to do that."
In these difficult economic times, it is hard to know what might get the economy round the corner. But what is clear is that no one measure will do it all.
Alistair Darling will currently be considering the advantages and disadvantages of various options. But it will only be a sensible package that can create any real impact.
The full article contains 924 words and appears in Edinburgh Evening News newspaper.
