Scottish house prices have continued an upward trend, with transactional growth now being seen in the higher price bands. The number of transactions above £250,000 increased from 9,094 five years ago to a record 19,259 during the year ending June 2018. As a result, the average transaction price reached £176,548 during the year ending June 2018; an annual increase of 5%. Similarly, the official UK House Price Index for Scotland has seen positive annual growth for the last 27 consecutive months, increasing by 5% during June 2018. Moreover, annual growth in prime values according to the Savills index in Scotland was 2% during the second quarter of 2018.

Lack of supply restricts transactional growth

A lack of supply has constrained the transactional growth that the Scottish market has enjoyed in recent years. In the first six months of 2018, the market witnessed a 6% drop in transactions compared to the first half of 2017.

This can be explained by a combination of a reduction in the number of new properties coming to the market and the effects of the extreme weather caused by the ‘Beast from the East’.

Alongside ongoing supply constraints and a fall in Buy-to-Let mortgage lending, the extreme weather earlier this year is likely to have had a negative impact on viewings, offers and subsequent transactions. However, already we are seeing a recovery in the second half of 2018. This is evident in the latest Registers of Scotland data which shows the number of Scottish transactions during July 2018 exceeding the number in July 2017. We expect a recovery by the end of this year and the number of transactions in 2018 as a whole to be level with 2017.

A changing market structure

Fewer sales below £250,000, and in particular below £145,000, is another factor that has contributed to the drop in transactions this year. This is indicative of the changing price structure across Scotland’s current market. A decade ago, activity below £145,000 made up around 60% of all transactions.

With the help of low mortgage rates and government assistance over the last five years, buyers have been able to consider relatively higher value properties. This has resulted in fewer properties coming on the market in lower price bands. Consequently, annual transactions below £145,000 made up less than 50% of all residential activity over the last year. This has never happened before in any 12-month period.

What lies ahead?

We remain cautious about the growth prospects for the wider UK market, given the current political and economic uncertainty. Whilst London and its surrounding commuter areas are the most affected, there remains much more confidence in the Scottish markets, where there is capacity for further growth in values.

We are currently forecasting a 17% increase in Scottish house prices by 2022. In Edinburgh and Glasgow, the time that properties are spending on the market is reducing and we are seeing comparatively more viewers.