Day: November 21, 2022

The Walker Fraser Steele Acadata House Price Index (Scotland). Please refer to the Notes at the end for information on content and methodology.

· Walker Fraser Steele is the trading name of e.surv Chartered Surveyors in Scotland.

Table 1. Average House Prices in Scotland for the period September 2021 – September 2022 

(The prices are end-month smoothed over a 3 month period) (Link to source Excel)

Scott Jack, Regional Development Director at Walker Fraser Steele, comments:
“As the principal drivers underpinning much of the house price growth in the Scottish house market over the last couple of years (the pandemic, record low interest rates and the fiscal stimulus of the Stamp Duty holiday) become a distant memory, it’s no surprise that the housing market reflects this.

“This is not only happening here in Scotland but is reflected across the broader UK housing market.

“The average price paid for a house in Scotland in September 2022 was £223,604 which represents a reduction of £485, or -0.2%, from the price seen in August. It is the second fall in a row for Scotland’s monthly average house price, but this follows 13 months of successive gains.

“If we take stock for a minute of the longer-term performance, we can see that while the average price has fallen in the month, it remains some £13,300, or 6.3%, higher on an annual basis than it was twelve months earlier.

“Clearly, we should not be surprised if this annual rate of price growth slows for the reasons I have outlined. But things to keep an eye on include the budget this week, the expectation that inflation is easing, and that mortgage rates and affordability will improve in the first quarter of next year, and the lack of supply that has always supported higher prices. These may all mean this reduction in house prices is less short-lived than many suspect.”

Commentary: John Tindale, Acadata Senior Housing Analyst

The September housing market

The average price paid for a house in Scotland in September 2022 was £223,604. This represents a fall of £485, or -0.2, from the price seen in August, and is the second fall in a row for Scotland’s monthly average house price, following 13 months of successive gains.

Despite the average price having fallen in the month, the price is still some £13,300, or 6.3%, higher on an annual basis than it was twelve months earlier. However, the annual rate of price growth is slowing – having nearly halved over the last three months – from the 10.4% growth in June, to September’s rate of 6.3%.

Figure 1 below gives a sense of the direction of travel in the annual price growth over the past two years. As can be seen, the peak in growth rates occurred in September 2021 at 12.8%.

This was then followed by a period of slowing rates, which had fallen to 6.4% by March 2022, but regained traction during the early summer months of 2022 as demand for homes increased, against a backdrop of a reduced supply of properties coming to the market, with annual rates reaching a high of 10.4% in June 2022.

The slowing in rates after the June peak can then be seen, to September’s figure of 6.3% – the lowest rate since the 5.9% of November 2020.

The RICS Residential Market Survey for September suggests that the home sales market continued to lose momentum amid deteriorating macro conditions, with indicators on new instructions and agreed sales remaining negative.

As we discuss in the analysis of transactions on page 4, there is some evidence that the number of sales taking place in Scotland is currently below that of the pre-Covid years, but at present the reduction is relatively slight, at -6%. In addition, the reduction does not appear to apply to all sectors of the market at the same rate.

Sales of high-value properties in the first nine months of 2022 are at a record high, with few indications that the pace of such sales is diminishing. Edinburgh continues to dominate the high-end market, with half of all sales over £750k taking place in the capital. Edinburgh and the three Lothians have all set new record average house prices in September.

Transactions analysis

Figure 2 below shows the monthly transaction count for purchases during the period from January 2007 to September 2022, based on RoS (Registers of Scotland) figures for the Date of Entry (September 2022 totals are based on RoS Application dates).

The graph starts in 2007, which was something of an exception, with close to 150,000 domestic property sales taking place in the calendar year. The 2007 sales total is the largest seen during the last 18 years, although the period from 2004 to 2006 came close, with an average 139,000 sales on an annual basis.

However, during 2008 the banking industry began to suffer from its credit crisis, with home loans becoming difficult to obtain, especially for first time buyers, with the number of housing transactions falling to approximately 70,000 per year over the period from 2009 to 2012.

Normality was slowly restored from 2013, with sales rising to a yearly average of 87,500 over the period from 2013 to 2015, rising to an average 102,000 sales per annum from 2016 to 2019. This level was still some 25% below the levels seen during the period 2004 to 2006 – it was generally believed there had been a shift in the housing market, away from owner occupation to rental premises.

The effect of the Covid pandemic – which started in March 2020 – can be clearly seen on the graph. Housing transactions in April 2020 plummeted with the arrival of the pandemic, to be followed by a slow rise in sales as confidence began to return.

Then followed a period when sales exceeded previous levels, from September 2020, as lifestyle changes and the LBTT tax-holiday pushed up demand – especially for properties with space to allow for working from home.

The March 2021 peak is also visible, which coincided with the last month of the LBTT tax-holiday. The final month typically creates a peak in transactions, as purchasers rush to take advantage of the tax- holiday before the end of the month, after which time the tax savings come to an abrupt halt.

However, what can also be seen is that in 2022 sales volumes appear to be at the lower end of the period from 2016 to 2019; for example the average level in 2022 from March to August was 8,700 sales per month, compared to 9,250 per month in 2017 – a 6% reduction in sales.

Figure 2. The number of sales per month recorded by RoS based on entry date (RoS applications date for September 2022), for the period 2007 – 2022. (Source: Registers of Scotland.)