Comment: Budget 2011 and Scottish property
Friday, 25 March 2011 3:35 PM
Bill Burr examines how George Osborne's Budget will affect the Scotland's property industry, considering both first-time buyers and homeowners.
In 2008, the Scottish construction and property industry crashed. Unfortunately, the flow of finance has not yet improved since this recessionary shock. In fact, fewer mortgages were awarded in January 2011 than in January 2010.
The UK Budget was a disappointment. Although the additional funding for the English first-time buyers is intriguing, none of Osborne’s pledges will be enough to reignite the sector. Now, I’m looking forward to hearing how the Scottish government will choose to use their money. We need something new, engaging and revolutionary. We need to put money in people’s pockets to generate the action required in this diminishing market.
Planning reforms
The English government began by introducing planning reforms. A ‘change of use’ permission will no longer be required for those who wish to convert defunct office and shop units into homes. Although this will remove the eyesores of boarded-up units from our high streets, I can’t see this initiative delivering a significant amount of new homes. If this does happen in Scotland, it will not help the lack of liquidity. There are more pressing issues: we need more financial help.
The provision of affordable housing in Scotland is a major problem. Reforms to speed this up would stimulate the market and begin our road to recovery. Currently, the government is unable to put money into affordable housing and the budgets of housing associations have been dramatically cut. It’s up to developers.
However, we are still feeling the after-effects of the recession. This means that providing 25 per cent affordable housing may not be possible within each new development. We need more flexible, affordable options. Relaxing the percentage required would increase project viability. Surely it’s better to build some affordable housing, albeit less than target, than none at all?
FirstBuy scheme
First-time buyers are currently frozen out of the housing market. This is the main obstacle to economic recovery. Coaxing them onto the property ladder is the essential initial step towards a healthy and well-functioning market. Taking this into consideration, Firstbuy Direct has been introduced across England. It is hoped that the scheme, a joint venture between the government and house-builders, will provide £250 million of assistance to first-time buyers of newly built property.
This is an excellent initiative and will certainly spark market movement in England. It will also lead to the construction of new homes and safeguard industry jobs. I hope that the programme will be introduced to Scotland. This scheme, or something similar, would offer first-time buyers a chance to meet the high demands set by lenders. Developers currently tie up an unsustainable, substantial amount of capital in shared equity schemes. With government help we can be more flexible.
It’s up to the Scottish government to push things forward. I don’t expect them to replicate FirstBuy Direct, but I’d love to see something similar. The Mortgage Indemnity Guarantee proposed by Scottish Labour may go ahead and is an interesting proposal worth considering.
Pensions
As employers are still reeling from the abolition of the default retirement age, it was revealed that the potential of a state pension age of 70 is not a distant possibility. The government will hold regular reviews of life longevity to manage future increases in the pension age.
Decisions such as these have a knock-on effect. As people are living and working longer, they live in their houses for longer. A property that could be home to a family of five, for example, is often occupied by the parents even after the children have flown the nest. This is making it difficult for first-time buyers to move up the property ladder. As a result, the property market has become stagnant.
Meanwhile, as people continue to extend their working lives, their priority will be generating more money for their pension. Downsizing would allow for this, as opposed to filtering funds away on a house that no longer fits their needs.
By raising awareness of the benefits of downsizing, we need to encourage this sector of society to move from their large, empty, family home into a smaller and more manageable property. This would help to free up family homes and create more movement in the housing market.
Bill Burr is managing director of CHAP Homes and director of Woodland Grove and Tor-Na-Dee Ltd.
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