Four out of five towns unaffordable for first-time buyers in Scotland

Amanda Jarvis

January 24, 2005

The key findings of the Bank of Scotland Annual First Time Buyer Review are:

House Prices and FTB Numbers
– The average price paid by first-time buyers (FTBs) in Scotland increased by 18 per cent in 2004 from £70,085 in 2003 to £82,654 in 2004*. FTBs UK wide saw an increase in prices of 16% to £131,024 while FTBs in the North and Wales experienced the biggest price rises in 2004 with increases of 27% and 25% respectively.
– The affordability difficulties confronting FTBs have significantly reduced the number of FTBs entering the market. There was an estimated total of 32,000 first-time buyers in Scotland in 2004, the lowest annual total in nine years. The number of FTBs last year was more than a third lower than in 2002 (50,000). The drop in first-time buyer numbers in Scotland over the past year (-18%) was the sharpest of any part of the UK. Across the UK first-time buyer numbers hit a twenty year low at 361,000 in 2004.
– FTBs accounted for less than three in ten of all new mortgages in Scotland in 2004. This was well below the longer-term average of one in two.

FTB Affordability
– Four out of five post towns surveyed in Scotland were unaffordable for first time buyers in 2004. Edinburgh and Glasgow were unaffordable for first-time buyers but there were still towns within commuting distance of these cities, which remained affordable for first-time buyers. (See the technical note in Notes to Editors for the affordability calculation). Across the UK nine out of ten of the post towns surveyed were unaffordable for FTBs in 2004. There were some regional differences. In four regions – East Anglia, the South West, South East and the North – the survey found that 95 per cent or more of towns were unaffordable for FTBs.
– There has been a significant increase in the number of towns that are unaffordable for FTBs in Scotland over the past year. Eleven towns have become unaffordable for the average first-time buyer in 2004. In 2003 57% of towns were unaffordable, increasing to 81% in 2004. Only nine postal towns surveyed (19%) were affordable for Scottish first time buyers at the end of 2004.
– The least affordable town for a FTB in Scotland is Edinburgh where the average property price is 9 times the average income of a FTB. The majority of most unaffordable towns are in the Lothian, Strathclyde and Grampian counties.
– Lochgelly in Scotland is the most affordable town in Scotland and the UK for a FTB with an average property price three times higher than a FTB’s average income. The three most inexpensive towns for Scottish FTBs are in county Fife, while Strathclyde also includes number of affordable towns.

Deposits, Age and Property Type
– Scottish FTBs put down an average deposit of £14,568 in 2004. This accounted, on average, for 18% of the value of the property. Across the UK FTBs put down an average deposit of £26,455, 20% of the value of the property. Regionally, the average deposit varied from £48,364 in Greater London to £13,366 in Northern Ireland. The equity put into a first home in Scotland in 2004 was significantly higher than in the late 1980s with FTBs putting down a deposit equivalent to 13% of the property value in 1987.
– The average age of someone buying his or her first home in Scotland has risen in recent years with the average age of a FTB in 2004 being 37 years. This compares with an average age of 34 in 1999. Scottish first-time buyers are the oldest of any part of the UK. The average age for first-time buyers across the UK is 34 yrs old. The proportion of those aged 25 and under buying their first home remains low, at just 17 per cent of FTB home purchases.
– Nearly eight in every ten properties purchased by Scottish FTBs in 2004 were flats and maisonettes (63%) and terraces (16%). Detached homes and bungalows accounted for only 9% of all purchases by FTBs in Scotland.

The Future
– The proportion of first-time buyers is likely to increase from its current record low during the next few years. Earnings growth is set to outstrip house price growth in 2005 and over the medium-term. This will cause a reduction in the ratio of house prices to earnings, which will begin to make it easier for first-time buyers to enter the market.

Stamp Duty and FTBs
– The average FTB in Scotland now pays over £820 in stamp duty, equivalent to around 6% of their deposit or more than two weeks of their gross annual income. Two years ago the average first-time buyer in Scotland did not pay stamp duty. More and more FTBs are falling into the stamp duty net because the government has declined to index link the £60,000 threshold. The threshold has remained unchanged since 1993.
– Bank of Scotland will launch a campaign to persuade the government to reform stamp duty on residential property. The government is called upon to raise the £60,000 stamp duty threshold to allow for the rise in house prices since it was last increased in 1993 and to commit to increasing the thresholds in line with house price inflation in the future.

Tim Crawford, Group Economist, commented: “Affordability has now become a serious issue for people looking to get onto the housing ladder for the first time in Scotland and it is not just confined to the South of England. This is highlighted by the sharp decline in the number of first-time buyers in Scotland in 2004 to the lowest level in nine years.

There is some light at the end of the tunnel, however. We expect the situation to improve somewhat as earnings growth outstrips house price growth over the next few years. This will make it easier for first-time buyers, thereby boosting the number from its current very low level.”

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