SPECIAL FEATURE: CML Scotland special

Our latest data on lending in Scotland showed a typical lull in most types of lending activity in the first quarter of the year. One segment bucked the trend, however, with borrowing by home movers showing stronger year-on-year growth.

Movers took out 6,700 loans, worth £1.1bn, in the first three months of the year. Those figures were down 17% by volume and 6% by value on the fourth quarter of 2014. But, compared to the same period last year, borrowing by movers increased 5% by volume and 24% by value.

In contrast, the data on borrowing by first-time buyers and for remortgaging did not show growth on the same scale, although the figures are broadly consistent with last year. First-time buyers took out 5,400 loans, worth £580m, in the first quarter - with the number of loans 7% lower than a year earlier, but 2% higher by value. There were 5,900 loans for re-mortgaging, worth £660m, with year-on-year activity down 3% by volume and 1% by value.

Our next set of data on lending activity in Scotland - which will be published in August and cover the second quarter of the year – will show some effects of the introduction of the new Land and Buildings Transaction Tax (LBTT) on 1 April. The potential impact of the new tax is covered in more detail - alongside a wide range of other issues - in the Scotland section of our relaunched website.

But it is important to remember that any changes in our Scottish data for the second quarter will also reflect seasonal changes in market activity and the wider economic backdrop. The true impact of the new tax on housing and mortgage markets in Scotland is only likely to emerge over a longer period.

The end of stamp duty

The Scottish government has said that the introduction of the new tax, which replaces UK stamp duty, means that 90% of home-buyers will be better or at least no worse off. Anyone buying a home in Scotland for up to £330,000 will pay up to £400 less tax than under the stamp duty regime, and those buying for less than £145,000 (accounting for half of all transactions, according to the Scottish government) will pay no tax at all. Only those buying a home for more than £945,000 will pay more in tax.

The true impact in Scotland of the tax replacing stamp duty is only likely to emerge over time.

Estate agents in Scotland are still adjusting to the new tax but have predicted that “for many (it) will have a significant impact on the market.” The Scottish Executive of the National Association of Estate Agents has predicted that for many buyers the new tax reduces upfront costs considerably, enabling them to contribute more to their deposit. But the effects at the upper end of the market could be “significant,” the NAEA said, perhaps having an impact on property values.

The CML annual conference

The potential impact of LBTT is likely to be just one of a wide range of topics on the programme for our forthcoming CML Scotland annual conference on 17 June. Supported and hosted by The Royal Bank of Scotland at the RBS Gogarburn Business School in Edinburgh, the conference will update delegates on all the key issues affecting Scottish mortgage and housing markets.

The keynote address will be delivered by Alex Neil MSP, the Cabinet Secretary for social justice, communities and pensioners’ rights in the Scottish government. Stephen Garland, the Scottish government’s head of housing sustainability, will also cover the impact of government strategy on both the owner-occupied and private rented sectors.

The conference will also include updates on:

• the Scottish economy by Lloyds Bank Group Scotland chief economist Donald MacRae;

• the CML’s activity by director general Paul Smee; and

• our work on borrowing into retirement and pensions reform by CML senior policy adviser Andrew MacLachlan

With elections to the Scottish government due next May, a year after the recent UK general election, there will be plenty to cover in the conference’s review of the political landscape by Grayling associate director, Matthew Revett.

When voters in Scotland elect a new government next year, they will have taken part in three major polls in 20 months, including the independence referendum last September. Some commentators believe that this concentration of electoral activity has contributed to something of a hiatus in policy development. Even so, work is continuing on a number of important policy areas for lenders.

New rules for tenants

One of these is the Scottish government’s consultation on a new tenancy for the private rented sector, on which we submitted a response last month. A key point we have made in response to the government’s proposals is on the need to strike a balance between the rights of landlords and tenants, but that the balance now favours the latter.

Lenders are opposed to rent controls. The cause of high rents is a shortage of houses - and that is what policymakers must address.

It should be remembered that not all landlords are sophisticated investors. Not all are capable, for example, of anticipating the impact of potential increases in interest rates and inflation when undertaking rent reviews. There is a danger, therefore, that one consequence of the government’s proposals could be a reduction in the stock of private rented homes, which we believe would be disappointing, but not surprising.

Our submission also makes the case that:

Both landlords and tenants will to want to commit only to an initial tenancy period with which they are comfortable. We believe that because they will not be able to give notice during this initial period, it is unlikely that the parties will want an agreement to be more than six months – and some tenants may want only three months.

The proposal for annual rent reviews could mean the landlord sets a higher rent at the outset to ensure that any unforeseen increases in costs or interest rates are covered.

The proposal that tenants should be able to refer for adjudication what they regard as an unreasonable rent increase should not mean that landlords are prevented from charging a market rate.

Lenders remain opposed to rent controls at a local level. The cause of high rents is a shortage of houses in the areas concerned – and this is the issue that policymakers need to address.

Lenders are concerned about the proposal that, should they need to seek possession of the property, they would be required to write to tenant as well as the landlord/borrower. With a buy-to-let mortgage, the lender has from the outset consented to the borrower letting the property, but is unlikely to know who the tenant is.

Secondly, any requirement to write to the tenant before seeking possession puts the lender at risk of breaching a legal duty of confidentiality to their customer, who is the borrower/landlord.

Help to Buy in Scotland

Another important policy issue for lenders is the Help to Buy (Scotland) scheme, which is now fully subscribed, so new borrowers are no longer able to apply.

The budget for the current year totalled £130m (including £30m for the small developers’ scheme). Last year’s budget amounted to £140m. Applications received up to 26 May will be assessed and accepted if they were eligible under the rules of the scheme.

Borrowers are still able to apply through the scheme for small developers, but will first need to find a Help to Buy property for sale from a participating builder.

With Help to Buy shared equity schemes due to come to an end in Scotland in 2016, we have been working closely with the Scottish government and Homes for Scotland to consider what is needed to support the market for newly-built property in the future. Once this work has been concluded later this year, we would expect an announcement from the Scottish government.


The year-on-year recovery in activity by home-movers, in particular, is welcome, and we look forward seeing what the data for the second quarter will show. The next set of numbers will be affected by the introduction of the LBTT to replace UK stamp duty, but we are unlikely to be able to draw conclusions about the effects of the tax change.

Three major elections in 20 months has created something of a hiatus in policy development. But there are currently a number of key policy issues for lenders, including new tenancy proposals and the future of Help to Buy (Scotland).

More generally in Scotland, as in the rest of the UK, there is a shortage of supply of housing is all tenures, and a need to increase investment in new homes. There is also a need to invest heavily in the existing housing stock, particularly in the owner-occupied and private rented sectors and to meet climate change targets. We are therefore looking forward to a lively CML Scotland conference later this month.