Buying a home: trends in home ownership and Scottish Government support

As it is Scottish Housing Day, this blog takes a quick look at trends in home ownership and Scottish Government support to help people buy their own homes.

Are we still a nation of homeowners?

The majority of people in Scotland own their homes. According to the Scottish Household Survey 2017, around 62% of households live in owner-occupied housing – a slight fall from around 66% in 2005.

Many non-homeowners would like to be able to own their home. The 2017 survey reports that 44% households living in social rented housing, and 74% of households in privately rented housing would most like to live in an owner occupier property.

Barriers to home buying a home include: mortgage lenders’ requirements for substantial deposits; incomes not keeping up with house price inflation and job insecurity.

Fewer young people are owner occupiers

The fall in owner occupation has been particularly marked for younger households. In 1999, around half of householders aged 16-34 were owner-occupiers, compared to just over a third in 2017.  Private renting is now the most common tenure for this age group.

First time buyers were particularly affected by the global financial crisis as lenders tightened their lending criteria and removed many high loan-to-value products from the market.

House prices are now back to just above their pre-crisis peak levels. In July 2018, the average price of a house across Scotland was around £182k.

Although young householders now tend to rent, low interest rates and an increasing number of mortgage products have recently helped to increase the number of first time buyers. In 2017, there were over 35,000 loans to first time buyers in Scotland, the highest level in a decade.

More recent 2018 quarterly data from UK Finance does, however, suggest that numbers of first time buyers have declined compared to a year ago. It is perhaps too early though to assess whether this is the start of a longer- term trend.

First time buyers play an important role in the housing market. For example, a report prepared for UK Finance suggests that first time buyers provide liquidity in the housing market, allowing people to trade up and facilitate labour mobility.

Fig 1: Number of first time buyer loans: Scotland.

First Time Buyer Loans Scot (002)

 

Source: CML 2017, UK Finance 2018,

Many people rely on the ‘Bank of Mum and Dad’ to buy a home

UK Finance estimates that the average first time buyer deposit in Scotland is around £19k.

For many people, buying a home is only possible with support from family and friends, commonly referred to as the ‘Bank of Mum and Dad’. For example, Legal and General has estimated that over a fifth of buyers get help from the ‘Bank of Mum and Dad’ to buy a house. This situation has been described as one which is neither desirable nor sustainable, and one that increases inequality.

Scottish Government support for buying a home

Government support to help people into owner-occupation is not new. Over the last thirty years or so various initiatives, underlined by different policy objectives, have helped people to buy a home.

The main way that the Scottish Government currently supports people to buy a home is through shared equity schemes. Under these schemes, the Scottish Government provides buyers with an ‘equity stake’, effectively reducing the need for a higher deposit. Buyers pay back the government their equity stake at some point in the future.

These schemes are funded through ‘Financial Transactions’ funding from the UK Government. This is money that can only be used for loans beyond the public sector. Also, importantly, the funds must ultimately be repaid to HM Treasury.

In 2018/19, at least £120m of equity support will be available through the Low Cost Initiative for First-Time Buyers (LIFT) and Help to Buy scheme.

The main scheme in the LIFT programme is the Open Market Shared Equity Scheme. This supports priority groups, such as disabled people and people living in social rented accommodation, to purchase a house on the open market.

The Help to Buy (Scotland) Affordable New Build Scheme & Smaller Developers Scheme also provides a shared equity contribution for the purchase of new build properties, from a participating developer.

The Help to Buy scheme plays an important role in lower value new build sales. Using Scottish Government and Registers of Scotland statistics, SPICe has estimated that in 2017/18, sales through Help to Buy in Scotland accounted for at least 30% of new build sales under £250k.

Comment about government schemes

It is not clear whether government schemes always achieve their goals. Some of the questions raised about government support for owner-occupation include:

  • whether government investment simply inflates the price of new build properties
  • whether schemes allow people to buy a home who otherwise wouldn’t have been able to or simply allow people to buy a property earlier.

Perhaps unsurprisingly, housebuilders are supportive of the Scottish Help to Buy scheme. Homes for Scotland has highlighted its role in stimulating the house construction industry and the economic benefits that it brings.

However, the Help to Buy scheme has not been without controversy with suggestions, for example, that it simply increases the profits of major housebuilders.

Much of the comment in the media about Help to Buy relates to the situation in England. There, the UK Government has placed more emphasis on supporting home ownership compared to the Scottish Government, which has focussed more on supporting social rented housing.

There are also key differences between the Scottish and English Help to Buy schemes. For example, the Scottish Government has revised its scheme to focus more on the purchase of ‘affordable’ properties. In Scotland, the maximum purchase price is £200k compared to £600k in England.

Overall, there is little recent specific Scottish evidence about the impact of the government investment in these schemes. The Scottish Government is currently undertaking work to help decide the future shape of its housing investment programme post 2021. Consequently, it remains to be seen what role such schemes will have in the future.

Read more in the SPICe Briefing Buying a Home: Scottish Government Support

Kate Berry, Senior Researcher, SPIC