Scotland’s first-time buyers suffering as Home Report prices are exceeded

Posted 18 October 2016 by Keith Osborne

Lenders' limits on what they can offer buyers means upward pressure on prices through short supply is having a detrimental effect on first-time buyers...

First-time buyers across Scotland are suffering as a consequence of property demand outstripping supply and Home Report valuations are exceeded by keen purchasers with a property to sell, says an Edinburgh-based law firm.

With lenders constrained by the sum given on the Home Report for property in Scotland, those buying their first home are suddenly finding themselves needing to raise a lot more money in order to secure the property they want, with competing buyers who have a home already able to try to raise more funds through the price of their current one.

Even though the surveyor who produced the Home Report may later concede their price estimate was too low, the lender must act according to the original value.

David Marshall, operations director for Edinburgh-based Warners Solicitors & Estate Agents, is calling on a “much-needed consultation” from industry and political influencers: “With demand outstripping supply in the local market it is becoming increasingly common for properties to sell for more than their Home Report valuation. Often the premiums being paid are substantial and it is not unusual to see homes selling for 10% or even 20% above the valuation.

“Consider an example of a property with a valuation of £120,000 which achieves a selling price of £140,000. In this case, the buyer would need to provide a deposit of around 10% of the valuation, plus the difference between the valuation and the selling price, leading to them needing a total of £32,000. That’s £18,000 more than they would need in terms of cash if they simply had to provide a deposit equating to 10% of the agreed selling price.

“While homeowners can often bridge this gap by achieving a better selling price for their existing property, for most first-time buyers the additional cash required can prove to be an insurmountable hurdle.

“This isn’t anyone’s fault. Surveyors are valuing properties based on the information available to them and lenders want to be sure that they are not lending excessively. It is a very tricky issue and implementation of new policies can often have unintended consequences – for example, it was hoped that Home Reports would constrain house price growth to help first-time buyers and yet ironically, at present they seem to be making it harder than ever for them.

“Naturally the last thing anyone would wish to see is a return to excessive lending, but Home Report valuations are simply an estimate based on historic selling prices of similar homes. If a property attracts multiple offers that exceed this valuation, it is fair to say that the market has determined that the true value of the property is higher.

“For that very reason we would like to see, and take part in, an extensive consultation as to how we address this issue in a responsible and sustainable manner that will aid those who are less ‘cash-rich’ while avoiding a return to excessive lending.”

A recent report by Warners for Edinburgh hotspots Haymarket, Abbeyhill and Marchmont, demonstrated homes selling for an average of 8.7%, 7.5% and 7.3% above their Home Report valuations respectively.

Mortgage adviser for ESPC Mortgages, David Lauder, remarks: “The current situation certainly presents difficulties for those who are struggling to get onto the property ladder and unfortunately it is not an easy problem to resolve. Surveyors will assess values in large part based on historic sales, so in a rising market Home Report valuations can, in some cases, be well below the value that the market ultimately places on the property.

“One way to address this may be to give surveyors access to more detailed information on recent sales, including the number of notes of interest and value of offers that properties receive. This will allow them to more easily identify the current levels of demand at a very local level and potentially make valuations more accurate”


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