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Scottish housing market continues to pick up

A steady rise in house prices and an increase in buyer demand has led to an increase in the number of homes coming onto the Scottish property market, according to the RICS Residential Market Survey for August 2013.

Demand is now outstripping supply

The survey found that during the month of August, 48% more chartered surveyors reported increases in new properties being put up for sale in Scotland – a sharp rise over the 24% who reported the same in July. With positivity starting to return, RICS believes that people who may have been waiting for the right time to sell are now taking the plunge.

However, despite the big jump in properties available, RICS says that it did not rise sharply enough to keep pace with the sheer weight of demand. The survey revealed a sharp rise in the number of would-be buyers in August, with a net balance of 73% more respondents reporting growing numbers of enquiries from potential buyers.

Price increases expected to continue

RICS is predicting a steady increase in prices in Scotland over the short term, with a net balance of 43% more surveyors expecting further price growth over the next three months as the market continues find its feet.

“We are starting to see more people return to the housing market,” commented Sarah Speirs, Director RICS Scotland. “There are buyers are out there and prices are edging upwards.

“It is important, however, that prices do not rise to such an extent that they become unaffordable. For the market to work properly, it’s vital that property is both accessible and affordable, and we’ll be monitoring the situation very carefully as the housing sector continues to recover.”

Scotland is not the only country that is experiencing increased momentum in its property market – RICS reports that the UK regions generally are seeing a growth in supply. In particular, the South West and the North East have seen a significant rise in the number of new homes being put up for sale.

Concerns about another housing bubble

As a result, RICS has raised concerns about the prospect of another housing bubble developing in the UK, and has called for measures to prevent this happening. It has recommended that the Bank of England’s Financial Policy Committee consider limiting annual house price inflation to 5% . This, it says, would help to prevent another housing bubble, reckless bank lending and a dangerous build up in household debt.

With excessive price growth and high mortgage lending having led to a vulnerable banking sector, specific policy on limiting growth is needed, says RICS. Such a policy could be implemented with caps on elements such as loan-to-value ratios, loan-to-income ratios, and mortgage durations, or imposing ceilings on the amount banks are permitted to lend, should prices exceed a given limit.

Proposed cap on house price increases

RICs has suggested that if the Bank of England were to make it clear that it wouldn’t tolerate more than a 5% increase in house prices, this would help to restrict excessive price expectations across the country. As a result, says RICS, homeowners would be discouraged from taking on excessive debt out of fear of missing out on a price boom, and lenders would be discouraged from rushing to relax their lending standards as they compete for market share.

“The Bank of England now has the ability to take the froth out of future housing market booms, without having to resort to interest rate increases. Capping price growth at, say, 5% is one way of doing this,” explained Joshua Miller, RICS Senior Economist.

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