How will Brexit impact upon the Scottish property market? Part 2
Before the next part of our series, impress your friends with some quick factoids on Scottish law:
Scottish conveyancing solicitors are prohibited from being involved with transactions involving gazumping.
A contract for the purchase and sale of property is called the "Missives".
Until 1970 if you wanted to obtain a mortgage, you actually had to transfer the property to the building society or bank; they effectively became the owners of the property.
Registration in Scotland depends upon an outdated and sometimes inaccurate map – you could not make it up!
Buying a property is one of the few written contracts that requires extra formalities to be valid (electronic transfers of property have been possible since 2007 but the system is unsuitable for day-to-day transactions; someday a usable system should emerge, but do not bank on it!)
One of the few other documents that requires special writing is a Will; you can find out more about Wills on our sister website yourwill.scot
Scotland's legal system was originally based on Roman law and many Latin terms survive.
In the first part of our investigation of the impact of Brexit, we introduced a number of the background issues that are pretty important to this discussion.
We had a tremendous feedback from the first note and one thing we wanted to emphasise is that these articles are totally non-political. They are written from the point of view that the housing market is exceptionally important to Scottish society in many different ways and how it could be improved. The reality is that Brexit is important because of existing fault lines within the Scottish property market. Without understanding those fault lines, it is impossible to accurately contemplate how different Brexit situations may pan out.
Consider these facts:
In 2015 there were just over 100,000 transactions of homes in Scotland. (In our last note we highlighted that the number of transactions within the Scottish property market remains 35% below the figure reached before the financial crisis).
At the same time, according to Scottish government statistics, the number of households in Scotland is increasing by around 20,000 a year.
Buy to let purchases are estimated to represent around 16% of the current transactions.
In the 10 years between 2006 and 2016 house prices in Clackmannanshire rose by 4.6% while those in Aberdeen increased by 52% (prices in the Shetland Isles increased by 54%!)
There are slightly more residential properties in Scotland than the number of households but many of these properties are empty, "in the wrong place" or require improvements.
What is going on?
As you would expect there is not and neat simple answer but in general terms the market is driven by
The ability of the housing market to act as an escalator moving people up the housing ladder
The wider economic and political drivers of the time
Writing in 2016, issues with the second and third of these factors is causing major repercussions on the first factor mentioned - supply. In blunt terms, the market in Scotland for housing (like the rest of the UK) is somewhat dysfunctional. This does not mean that owning a house is not a brilliant idea; most people aspire to own their own home or move up the ladder and it is surely possible to achieve those aspirations more effectively than at the moment.
At the time of the independence referendum much was written and discussed about the impact on Scotland of deindustrialisation and the technological revolution. Although employment is currently much higher than when the landscape was dominated by industrial centres such as Ravenscraig, the nature and type of employment has changed greatly. As elsewhere there is an inexorable move to the cities and, in Scotland, Edinburgh and its conurbation show the characteristics of a "mini London". In 2006 the number of transactions in Glasgow city was over 10% greater than that of Edinburgh city. By 2016 the number of transactions in Edinburgh city (despite a significantly smaller population) had surpassed Glasgow city. When you look at the total value of those same transactions, Edinburgh city is worth 75% more than Glasgow meaning that the average price is much higher.
Whatever the impact of Brexit, its repurcussions will not be evenly felt over Scotland. Edinburgh benefits from a "mini London" boost of lots of government, banking and related service industries. This effect ripples out into the conurbations and small towns surrounding Edinburgh. There is a "city" effect in relation to Glasgow and the other cities in Scotland but to a lesser degree especially in the "rippling" out to neighbouring areas.
Next time we will look at how, despite their best efforts, governments of all colours in Scotland have followed policies which have exacerbated the problems with supply and the housing ladder. Learning from these past policies could inject much greater life into the Scottish property market and not only reduce any negative impact from Brexit, but provide improvements to the function of the market.