IT'S an all too predictable scenario. Person wants to buy a home, goes to view house, falls in love with property, then realises that despite the offers over price on the schedule, there's no chance they'll be able to buy it as the realistic selling
price is as much as 15 per cent more than that asked.
The average house price in Edinburgh is now a whopping £215,168 – and with the average annual salary standing at £29,000 (giving a standard mortgage reach of £120,000) getting the keys to the house of your dreams in the capital has, particularly for first-time buyers, become nigh on impossible. Unless you – and your lender – are prepared to take a risk.
Banks and building societies have, until now, been delighted to have their customers mortgaged to the hilt, some offering up to six times the level of a person's salary and allegedly turning a blind eye to other financial outgoings, so they can get on the property ladder.
But as a result of the credit crunch now biting – thanks to banks' investment in the sub-prime mortgage market in America which has collapsed, leaving the wholesale money market all dried up – that's about to change.
The chief executive of the Financial Services Authority has already said the era of cheap credit is over, and the watchdog has launched a £2 million advertising campaign to help people worried about their fixed rate mortgages which end this year as they could face big hikes in their repayments.
To top it all off, the ESPC predicts house prices in Edinburgh, which have risen ten-15 per cent each year in the past decade – always giving people the option of cashing in by selling – will rise by just three per cent in the next year.
Ron Smith, ESPC chief executive says: "The level of growth we witnessed in the local property market in 2007 outstripped projections but, as we have been saying for some time, these levels would not be sustainable over the longer term, and we are now starting to see inflation return to more moderate levels.
"Demand for property and the local economy both remain strong however, and we expect to see average growth in prices across east central Scotland of between three and five per cent over the coming 12 months."
But reality has already begun to bite – unsurprisingly in the more popular and expensive areas. Two-bedroomed flats in Marchmont and Bruntsfield, for instance, saw prices rise by just 2.8 per cent in the last year. And in the suburbs where the demand for family homes is increasing, the price of a four-bedroomed detached home only rose by 4.3 per cent.
Still at an average price of £447,020, it's not surprising most families in need of a new house feel they are forced to look outside the city, which in turn is driving up prices in the rest of the Lothians, Fife and the Borders.
Smith adds: "In Kirkcaldy, for example, the average price of a property sold in the last quarter of 2007 was some 26 per cent higher than in the same period in 2006 and now stands at £161,795. Dunfermline and Falkirk also witnessed annual growth of over 15 per cent, taking the average prices to £150,653 and £152,545 respectively."
Cashing in on the Edinburgh market and moving to somewhere more affordable, reducing mortgage and other debt, is an option being taken by many families – and should hopefully mean many won't face mortgage problems.
But according to independent financial advisor Trevor Hurley, of Hurley Financial Services in Carrick Knowe, there are increasing numbers of people who will.
"As a result of the credit crunch, most of the big lenders have already pulled out of offering 100 per cent mortgages, so that will hit first-time buyers particularly hard," he says.
"Lenders now seem to be using credit scores when it comes to mortgages, so if you've got a good credit rating you'll get a mortgage, if not, then there's much less chance. This will also have a huge impact on first-time buyers as some might not even have a credit history, and as a result they might not get a mortgage.
"Even when they do they're taking interest-only mortgages – with no endowments – and that's going to have a huge impact 20 years down the line when they can't afford to pay off their homes. Everybody's pinning their hopes on property prices rising, but they won't continue at the rate they've gone up in recent years."
He added: "I've had clients coming in wanting to sell their homes because they need to pay off debt and that's their only option – then they're looking at renting their own house back. There will be huge growth in that market."
There's also growth in the incentive market when it comes to selling new houses. While Hurley believes the new-build market is slowing at a greater rate as the homes are not what buyers want (flats as opposed to family homes) and for first-time buyers are still too expensive, developers themselves see it slightly differently.
The Walker Group is offering to cover gas and electric bills for two years at its Roman Fields development in Dalkeith to ease house-hunters' "nerves" about the economy, while Bryant Homes' offers include paying the first year's mortgage, picking up the tab for all moving costs, and for first-buyers the chance to secure a home for just £99 down because "we understand how tough it is to make that initial step on to the property ladder".
Cala is also offering deals – like 100 per cent home exchange. "People can move into a brand new Cala home and we take care of the sale of their existing property. This means they don't have to go through the hassle and worry of selling. Other incentives which may be available are a discount, interior design packages and garden landscaping," says Gill Gray, media and communications director.
Admittedly a three per cent rise in house prices is not the same as a reduction, but the fact that people can no longer rely on making as much profit when selling, can only result in the market stagnating.
As money-saving expert Martin Lewis says: "With the credit crunch biting, house prices teetering and the economy wobbling, 2008 is likely to be the worst financial year in a long time.
"There's nothing any of us can do except sort out our own finances to make them as strong and efficient as possible. Plan for the worst but hope for the best."
The full article contains 1148 words and appears in Edinburgh Evening News newspaper.
