Short term effect of second homes tax pushes Edinburgh prices up

The latest figures, which cover the period from December 2015 to February 2016, reveal that while average property prices across east central Scotland have dropped by 3.6 per cent, when compared with the same period a year before, one and two bedroom flats in Edinburgh have seen an increase in average prices over the last three months.

This could be attributed to increased demand on potential buy-to-let properties ahead of the new supplementary tax on second homes, which is to be introduced on 1st April, the estate agent said.

One bedroom flats in the Leith area have increased by 10.5 per cent, and two bedroom flats in Leith have increased by 16.9 per cent, year on year. One bedroom flats in Polworth, Shandon and Tollcross have seen average prices increase by 14.8 per cent and two bedroom flats in Newington and the Grange have seen average increases of 22 per cent.

Properties selling the fastest are one bedroom flats in Morningside and two bedroom flats in Fettes. Despite these increases in certain areas, for first time buyers, the most affordable areas to buy one and two bedroom flats are Sighthill and Gorgie.

The number of new homes brought to market between the months of December and February decreased by 8.7 per cent annually.

ESPC said that for the next few months it should be kept in mind that we are comparing the number of new listings with the period last year when the LBTT tax change was announced, and sellers decided to bring their properties on to the market meeting buyer demand for purchasing homes prior to the effective date of the new tax rates. This is coupled with the trend seen last year of less homes coming to market when compared with previous periods.

An ESPC statement said: “The market at present is still very much in favour of the seller with less properties marketed meaning faster selling times, down to 38 days on average at present, and more and more properties meeting or exceeding their Home Report valuation.”

Maria Botha-Lopez said: “The higher increases in property prices for one and two bedroom flats could be attributed to increased demand ahead of the 1st April implementation of a 3% LBTT supplement on second homes or additional dwellings. This is also the type of property sought after by first time buyers looking for an affordable option to get on the property ladder. The short term effect of this LBTT supplement, which aims to strengthen the first time buyer’s position in the market, has instead increased in average selling prices for those types of properties.

“Future house price reports will show whether this is a temporary effect on demand and prices leading up to the 1st April effective date, or if growth in prices cool off after the implementation.

“While we are seeing an overall decrease in average selling prices over the last three months, it is worth bearing in the mind that average prices in the first quarter of 2015 were driven up by larger than normal volumes of high-end properties selling before the implementation of LBTT in April last year. The average selling price across east central Scotland has increased by 10.5% when compared with the same period of the prior year (December 2013 to February 2014).”

Ms Botha-Lopez continued: “In addition to these tax changes, the government this month announced proposed changes to council tax which would become effective from April 2017.While those living in bands A to D would be unaffected by the change, those in E to H bands would see their council tax rates increase by £105, and up to £517, a year. These Council Tax changes seem to be relatively low-level and we don’t anticipate it having a material impact on the property market, however it provides another piece of uncertainty for home-owners and potential buyers. With so much change in the property market it’s essential that buyers and sellers do their research and speak to the experts before committing to purchase or sale.”