Scottish Residential Property Market: Easter 2021 And The Government-backed 5% Deposit Scheme

Published date06 April 2021
Subject MatterFinance and Banking, Real Estate and Construction, Charges, Mortgages, Indemnities, Financial Services, Real Estate
Law FirmShepherd and Wedderburn LLP
AuthorGreig Honeyman and Phil Harris

In a recent article we discussed how, following the COVID-19 pandemic halting the Scottish residential property market for the first time in living memory, the market had experienced a resurgence, with many properties in Edinburgh and Glasgow selling at closing dates with prices 10% - 20% above Home Report valuation. This resurgence has continued through the first quarter of 2021, but with the Land and Buildings Transaction Tax (LBTT) threshold now dropping back to pre-pandemic levels prospective buyers should consider whether this is a good time to buy.

Is this a good time to buy?

This remains a difficult question to answer as we continue to live in unprecedented times. One the one hand it, could be argued that the current market operates in an artificially inflated bubble and we may still see a reduction in prices in the coming months. However, with an unpredictable stock we have so far continued to see growth in property investment, particularly from overseas investors in Edinburgh. Any reduction in prices could therefore be short lived. The lack of property stock continues to add to the sellers' market we are experiencing.

One recent piece of news that may also keep the market buoyant was delivered by Chancellor Rishi Sunak during his recent Budget statement where he unveiled a new UK Government-backed 5% mortgage scheme. The scheme will enable lenders to offer more deals to homebuyers with a low deposit or limited equity, and is designed to help those with a 5% deposit obtain a mortgage with the government backing part of the loan.

Under the scheme, first-time buyers, home movers and previous homeowners with a 5% deposit will once again have access to 95% loan-to-value mortgages. These are lending criteria which have generally not been available since before the banking crisis as far back as 2008/9.

For a purchaser there will be no discernible difference between a 95% mortgage offered through the government scheme and a 95% mortgage offered outside this scheme. However for the mortgage lender, the scheme guarantees that the government will meet part of the cost if the borrower defaults on repayments and the lender loses money. This should result in the scheme being popular with high street lenders and purchasers alike.

The scheme is scheduled to run until the end of 2022 and so should have a big impact on the first time buyers' end of the market with a resultant knock-on effect on the rest of the residential market.

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