Housing

Demand for space fuels surge in mortgages and prices

For sale, sold, homes, housing, property
No sign of slowdown in the market (pic: Terry Murden)

Demand for homes with more space during the pandemic, together with the property tax holiday, helped drive a 24% increase in new mortgages in Scotland last year.

There were 70,190 new mortgages approved compared with 56,450 in the previous year, according to UK Finance.  

First-time buyer mortgages were up 22% to 35,100 (2020: 28,740). This is also higher than the pre-pandemic level of 32,630 in 2019.

Mortgages for those moving home were up by 27% to 35,090 (2020: 27,710). This is also higher than the pre-pandemic level of 33,620 in 2019.  

At the same time, the loan-to-income (LTI) ratio for homebuyers hit its highest level, reflecting the strong growth in house prices.

The LTI ratio is the number of times greater the amount a mortgage is compared to the total income of the borrower. For first-time buyers in Scotland this reached 3.24 in the final quarter of last year, while it was 2.97 for home movers.

This is compared to an average LTI of 3.59 and 3.37 for first-time buyers and home movers respectively across the whole of the UK.

Lee Hopley, director of Economic Insight and Research, said:“Appetite to buy or move home was up last year with demand boosted from the Land and Buildings Transaction Tax holiday and changing housing needs from the pandemic.

“The increase last year follows suppressed activity in 2020 at the start of the pandemic, but it’s notable that home buying numbers in 2021 also exceeded those in 2019.  

“We expect to see a return to a more stable mortgage market this year with continued appetite to buy property; however, the pressure on real incomes from rising inflation is likely to bear down on effective demand.” 

Price of homes still rising

According to new data from Nationwide Building Society the cost of a typical UK home rose by a record £29,162 in the last year.

This pushed up the price of an average UK home to £260,230 and was the biggest cash increase in property prices since the society began collecting comparable data in 1991.

Property values are being driven by continued demand from buyers who are competing for relatively few properties on the market.

The Nationwide said that its data suggested UK house prices had risen by 12.6% in the year to the end of February, and acceleration from the 11.2% annual increase recorded in January.

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Significant house price rises are continuing despite a squeeze on household finances caused by the rising cost of domestic energy, petrol and other necessities such as food.

“The continued buoyancy of the housing market is a little surprising, given the mounting pressure on household budgets from rising inflation, which reached a 30-year high of 5.5% in January, and since borrowing costs have started to move up from all-time lows in recent months,” said Robert Gardner, Nationwide’s chief economist.

He said the economic outlook was uncertain, although it was likely that the housing market would slow.

Many people reconsidered how they lived and worked during the Covid lockdowns, leading to a race for space among buyers. In recent months, there has been a considerable shortage of homes on the market to match demand, which has pushed up asking prices.

The Nationwide said the price of a typical home was 20% higher than the same month two years ago, just before the start of the pandemic – the equivalent of a £44,000 increase.

House prices rose at the fastest annual pace since 2007 and reached a new record high according to the Halifax HPI.



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