Comment: LBTT latest relief trying to aid first-time buyers

Shawn Wood

The LBTT relief for first-time buyers, which came into force on June 30th, is the latest in a series of moves by the Scottish Government to help people get on the property ladder, but buyers will struggle to compete for properties in city centres in the current climate, says Shawn Wood.

What does climbing Mount Everest have in common with getting on the property ladder? Other than both involving an uphill struggle, many people trying to buy their first home would likely agree both are also challenges of endurance.

The difficulty in taking that first step to home ownership in Scotland – and the UK as a whole – has been well documented and a number of support initiatives have been brought in to combat this. The latest of these will see first-time buyers granted relief from Land and Buildings Transaction Tax (LBTT), which was introduced to replace stamp duty in April 2015. LBTT is designed so that the charge is relative to the value of the property and the relief, which came into effect at the end of June, will reduce the tax payable on a purchase for first time buyers by up to £600.

This relief becomes the latest in a raft of measures brought in to ease the burden of securing that first home. First-time buyers can access an ISA Bonus through Help to Buy, which means the Government provides an additional 25% on top of an individual’s savings. A 3% tax on people buying additional property was also introduced and, whilst this slowed down the sector for a time and offered a temporary reprieve to first time buyers, many people with enough money to own multiple properties are not put off by this additional cost.

Tax relief on mortgage payments is being phased out over the next three years and this may make it more expensive for landlords to run a buy-to-let. Landlords may sell or discouraged from entering the market and more properties combined with less competition is ideal conditions for first-time buyers.

There is also the Low-cost Initiative for First Time Buyers (LIFT) scheme, a shared equity scheme which supports people to buy their first property. However, the catch of the LIFT scheme is that those on it can only put forward an offer at the valuation price of a home. The terms of the agreement impose this, and it creates a headache for those looking to purchase in a city centre, particularly Edinburgh.

During the recession, many homes in the heart of Edinburgh were being sold for less than the valuation price and this worked in favour of first time buyers. Since the recession ended, the housing market has been booming and in Edinburgh there is virtually no chance a property will be sold at its valuation price. In fact, many go for as much as 15% more than the market value. For a cheaper property in the capital, priced at, for example, £120,000, the implications are significant for first-time buyers. It can mean having to save thousands of pounds extra on top of what is expected.

Many homes in city centres sell quickly and in Edinburgh we are seeing upwards of a dozen offers come in for the majority of properties. Competition is fierce and many young people with aspirations to live in a desirable area of the city centre will have to save religiously as soon as they enter full-time work. The reality for most is that they will have to settle for a place in a less gentrified part of town, though Edinburgh’s rich built environment means attractive homes can be found across the city and there are bargains out there.

Lots of young people want to live in the heart of a bustling city, but if their wish to secure their own mortgage trumps this they would do well to look at new builds springing up on the outskirts of Edinburgh. Developments in places like Shawfair, Bonnyrigg and Dalkeith are coming to the fore and whilst there is an imbalance between housing supply and demand in Scotland, some semblance of progress is being made.

There is also a significant drop in house prices between the capital and neighbouring regions such as the Lothians and Fife. Though prices did rise last year because of increased levels of interest, areas such as Midlothian and West Lothian are much more affordable and come with ease of access to the capital – and much of the Central Belt – for those who commute.

Attempts by the Scottish Government such as LBTT relief to support first-time buyers should be commended but it is not clear what other steps they can take. For first-time buyers, prices need to settle down for them to truly have freedom to afford to stay wherever they want to.

  • Shawn Wood is a solicitor with Watermans Legal
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