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Looking ahead, there is likely to be a downward pressure on prices and transactions across mortgage-dependent markets in Scotland due to the rise in interest rates and drop in mortgage availability.
Faisal Choudhry - Director, Residential Research
Whilst economic uncertainty is affecting the wider housing market, Scotland’s prime market fundamentals have remained strong in recent months. The level of demand remains resilient, with the number of new buyers registering with Savills during Q3 2022 to purchase a Scottish property 65% higher than in the same period in 2019. That said, the number is 16% lower than in 2020 and 2021, when the market was more frenzied.
Meanwhile, there has been a flurry of deals, with 30% more sales agreed above £500,000 between July and September compared to the same months last year, according to data provider TwentyCi. But alongside this, new supply has also gone up and buyers can now choose from a wider range of properties. Availability at £500,000 and above is the highest in two years as potential sellers have been taking advantage of the strong run of price growth since the pandemic and choosing to put their property on the market.
What remains unchanged though is the rate at which appropriately priced properties continue to be snapped up, with larger homes spending 29% less time on the market than last year according to Home.co.uk.
Prime Scottish values have risen by 17.1% since the beginning of the pandemic supported by strong demand and a limited level of available stock, according to the Savills Prime index. However, increased interest rates and the cost of living are impacting price growth. In the three months to September, prime prices increased by 0.4%, the lowest quarterly growth since March 2020. This puts them 5.8% higher than a year ago, when annual growth was sitting at 8.1%.
Much of the price growth since the pandemic has been led by properties in village and rural areas due to the trend for more space and a change in lifestyle. However, price growth here has flatlined as buyers prioritise proximity to facilities and amenities that are more widely available in city and town areas. Consequently, quarterly price growth in Scotland’s urban locations reached 0.7%.
Meanwhile, prices for properties above £2 million fell by 0.4% in the last three months, which is the first quarterly drop since 2015 when Scotland’s Land and Buildings Transaction Tax was introduced. This drop is a consequence of softening demand from discretionary buyers at the top end of Scotland’s prime market in rural locations. However, demand for homes above £2 million in the city areas of Edinburgh and Glasgow remains strong.
Price growth continues to be led by demand for a limited supply of townhouses in the city area of Glasgow and family homes in Edinburgh City. Quarterly price growth for prime houses in both cities reached 1.1% and 1.9% respectively. However, demand for mortgage dependent flats has softened, with prices in Edinburgh witnessing a quarterly drop of -1.1%. That said, well-presented flats and those in hotspots such as St Andrews continue to achieve strong premiums.
Outside the cities, price growth was led by areas surrounding Glasgow with strong demand in waterside locations, particularly around the Firth of Clyde. Here, there were 63 prime transactions above £500,000 over the last 12 months, compared to just 22 in the year before the pandemic, with the majority taking place in the G84 postcode that includes Helensburgh.
Prime price growth of 23% since the beginning of the pandemic in Scotland’s heartland of Perthshire, Fife and Stirlingshire and also the Lothians and Borders was among the highest across Britain. Whilst the market here remains undersupplied, price growth was modest in the last three months. That said, medium-sized, modern and energy efficient homes continue to sell for a premium.
In the North East of Scotland, quarterly prime price growth was on a par with Scotland as a whole, with Broughty Ferry in Dundee, northern parts of Angus and southern parts of Kincardineshire outperforming.
Meanwhile, Aberdeenshire has seen steady price growth in areas close to Aberdeen City where transactional activity continues to recover, mainly for properties below £700,000.
Looking ahead, there is likely to be downward pressure on prices and transactions across mortgage dependent markets in Scotland due to the rise in interest rates and drop in mortgage availability. The extent to which any price adjustment occurs will depend on the level at which interest rates peak and the period during which they remain at elevated levels, before lower inflation allows the Bank of England to bring them back towards around 2% in the medium term.
Whilst more affluent buyers with lower debt requirements will be less affected, weakening sentiment across the wider housing market is likely to feed into Scotland’s prime market. Indeed, with around a third of Savills buyers using mortgage lending, the prime market is not completely immune to higher costs of debt. That said, in markets that attract international interest, including Edinburgh, St Andrews and Scotland’s west coast, the weakness of Sterling should also attract dollar-based buyers who now view these markets as offering real value.
Nevertheless, it will become an increasingly price sensitive market that favours appropriately-priced properties, especially in markets that have seen an increase in supply.
The type of properties that are likely to remain relatively unaffected are family homes near top-performing schools in Scotland’s city and suburban locations as demand here continues to outweigh supply.
< View our latest Q3 2022 updates here.
For more information, please contact your nearest Scotland office or arrange a market appraisal with one of our local experts.