Scotland’s prime market has witnessed a positive start to the year with constrained supply underpinning values. However, as a wider selection of properties become available, realistic pricing will be essential in order to convert underlying levels of demand into transactional activity
Faisal Choudhry, Director, Savills Residential Research
As the traditional spring housing market gets underway, demand for prime Scottish properties is buoyant, against a backdrop of a positive start to the wider market so far this year as mortgage rates continue to settle.
The number of buyers registering with Savills during the first three months of 2023 to buy a home in Scotland was 52% more than the same months of 2019 before the pandemic.
This demand is being translated into relatively strong transactional activity, with a 5% increase in the number of Scottish net agreed sales above £500,000 during Q1 2023 compared to the level in the same period of 2022 and 13% higher than Q1 2021.
The number of Scottish net agreed sales between £300,000 and £500,000 during the first three months of 2023 was 13% higher compared to the level in the same period of 2022 and 9% higher than Q1 2021.
Scotland continues to outperform the rest of the country, with the number of net agreed sales above £500,000 in regional markets outside London 23% lower during Q1 2023 compared to Q1 2022.
Despite Scotland’s better transactional performance, it remains a cautious market in the face of economic uncertainty. This was demonstrated in the high number of property deals falling through and some price reductions so far this year. With properties spending slightly more time on the market than last year and the level of available stock nudging upwards, sensible pricing will be crucial, with buyers reluctant to offer the premiums of yesteryear due to stretched budgets.
However, well-presented and realistically-priced properties in sought-after addresses are still commanding competition and, in some cases, buyers are prepared to pay more for the right home. The chronic undersupply of these properties continues to apply upward pressure on prices.
With demand and supply finely balanced, the Savills Prime Scotland Index was largely flat during the first three months of 2023, with prices 0.2% lower compared to the final quarter of 2022. This leaves them 1.0% higher than a year ago and 16.1% higher since the beginning of the pandemic three years ago.
In comparison, prime prices outside London saw a quarterly drop of 1.0% during Q1 2023, with an annual fall of 0.7%, the first since September 2019.
Meanwhile, Scottish mainstream prices fell by 3.1% between Q4 2022 and Q1 2023, according to Nationwide.
Country properties with acreage remain popular, with a greater focus on commutable addresses with good local schools. Consequently, prime prices for properties in Scotland’s village areas saw a slight quarterly uplift of 0.2%.
That said, prices of £2m+ country houses in Scotland saw a sharp quarterly drop of 2.6% during Q1 2023, which highlights the softening in demand from discretionary buyers at the very top-end of Scotland’s market since the tumultuous ‘mini budget’ at the end of September last year.
Country living may have become more fashionable in recent times, but the popularity of prime urban locations remains unrivalled. Prime prices in Scotland’s towns and cities are currently 13.0% above the 2007/08 peak, whereas prices in the areas that surround them are 13.2% below that high watermark.
Whilst prime Scotland prices have seen little change this year, there are variations across different markets.
Prime Edinburgh City prices dropped by 0.7% in the three months to March, but this was mainly due to a softening market for flats. Family houses, on the other hand, continue to attract interest, but mainly up to £1.5 million, with weaker demand above this level. Buyers in Edinburgh have become less compromising in their offers, with the cost of borrowing evident in the level of premiums being achieved over Home Report values.
A similar trend has also played out across the prime Glasgow market, where prices were flat during Q1 2023. Here too, the market is now more balanced, with buyers protecting cash reserves to carry out renovations at a time when the cost of modernising a home is high.
While prime prices in country areas around Edinburgh saw little change during Q1 2023, constrained supply has supported values, with excess stock largely absorbed in recent months.
Following an adjustment at the end of last year, prime prices across Perthshire recovered during the first three months of 2023, with a 0.9% uplift. This was led by areas such as Rhynd, Forgandenny and Crieff, which are within easy reach of Perthshire’s private schools, and also Strathtay for those wanting to buy properties with scenic views. Whilst an imbalance between supply and demand has underpinned values here, future pricing is likely to come under pressure as more stock is expected to launch later this year.
Constrained supply has also supported values in Dundee and Angus, where the Forfar area saw a slight uplift. Prime market activity across the Aberdeen area has been buoyant for realistically-priced properties from £400,000 to £600,000 where stock levels are low. However, demand is limited beyond this level, especially at the top end, above £1 million.
Looking ahead, prime Scottish prices are likely to come under pressure due to more stock coming onto the market amid wider economic uncertainty. That means sellers will undoubtedly need to be pragmatic on pricing over the course of 2023 as the market becomes more dependent on needs-based and opportunistic buyers. Accurate pricing from the outset will be important to secure a sale.
That said, demand for best-in-class and energy-efficient homes is outweighing supply as buyers increasingly look towards oven-ready properties, given the high cost of refurbishing.
Overall, the prime Scotland market will be less affected by the economic pressures that will drive the wider mainstream housing markets this year. But, as has already been apparent over the past six months, it will not be immune to these pressures, particularly given the change in buyer sentiment.
< View our latest Q1 2023 updates here.
For more information, please contact your nearest Scotland office or arrange a market appraisal with one of our local experts.