Scottish House Prices in July edge down from record highs

July House Price Index from Chartered Surveyors, Walker Fraser Steele:

• Scottish House Prices in July edge down from record highs
• Transactions continue to languish
• Demand for higher-value properties decreasing
• A small majority of local authorities see annual price falls
• Glasgow reports record high prices
• Average Scottish House price in July £223,035, down 0.4% on June, 0.3% up annually

Table 1. Average House Prices in Scotland for the period July 2022 – July 2023

Scott Jack, Regional Development Director at Walker Fraser Steele, comments:

“With the end of interest rates rises perhaps in sight, we may yet see better news in the coming months for house price growth. But for now, the picture in July is less rosy as the housing market contracted due to the persistent challenges from rising interest rates, cost of living increases, and affordability pressures.

“All of these are conspiring to take the wind out of prospective buyers’ sails – not least new buyers who are particularly impacted by affordability challenges. However, with the announcement of the first sub-5% fixed rate mortgage in mid-September, we hope to see transactions increase and confidence to return to the market towards the end of the year.

“The pattern of slight monthly rises that we saw in prior months came to a stop when the average property price decreased by £900, or -0.4%. The average home price in Scotland is currently little over £223,000, which is still the third-highest month on record.

“Lack of supply of the right type of property will always support prices in the long-run, particularly given the news of builders slowing down or stopping developments. Not all sectors and geographies are affected equally by the headwinds either. There were almost equal numbers of local authorities reporting higher or lower prices in July 2023, with 15 of the 32 local authority areas in Scotland seeing their average prices rise above the levels of twelve months earlier and 17 authorities reporting price falls.”

Commentary: Bob Pannell, Acadata Senior Housing Analyst

July’s housing market

Scotland’s housing market retreated a little in July in the face of ongoing headwinds from higher interest rates, cost-of-living and affordability pressures. The average property price edged down by £900, or -0.4%, bringing to an end the pattern of small monthly increases seen in previous months. Scotland’s average house price now stands a little above £223,000, still the third-highest month on record.

Figure 1. Scotland’s average house price for the period from March 2020 to July 2023

Figure 1 shows how average house prices in Scotland have changed since the start of the Covid pandemic in March 2020. Prices have risen by £40,000 from £183,000 to £223,000 as at July 2023. The increase of 21.9% over the period compares to one of 18.8% in the CPIH Index – so in real terms (after allowing for consumer price inflation) the average house price in Scotland since the start of the pandemic has risen by around 3%.

House price inflation, measured year-on-year, remains in positive territory but only just – up 0.3% compared with July 2022. This represents a sea-change from just over a year ago, when Scotland briefly witnessed double-digit percentage increase in house prices. It also marks the weakest performance since early 2019, that is before the Covid epidemic.

Much of the adjustment to the more challenging conditions facing the housing market is coming through as lower levels of activity, with sales so far this year about 10% lower than the corresponding months of 2022. Whilst a significant correction, this is only about half that seen in England & Wales.

This pattern of subdued market prices and turnover may continue for some while. Nevertheless, with continuing strong earnings growth and financial markets beginning to look forward to official interest rates peaking, there are grounds for optimism that Scotland’s housing market will see a soft landing and subsequent recovery.

Local Authority Analysis

Table 2. Average House Prices in Scotland, by local authority area, comparing July 2022, June 2023 and July 2023

Table 2 shows average house prices, calculated on a seasonal- and mix-adjusted basis, by Local Authority Area for July 2023, June 2023 and July 2022, together with the corresponding percentage price changes over the last month and year. The ranking figures are based on average house prices. Line items are shaded in blue in cases where average house prices in the Local Authority area or Scotland as a whole have experienced record highs.

Annual change

The average house price in Scotland in July 2023 has increased by £762 – or 0.3% – over the last twelve months. This represents the weakest annual rate of growth since early 2019, before the Covid epidemic.

Although there were almost equal numbers of local authorities reporting higher or lower prices In July 2023, with 15 of the 32 local authority areas in Scotland seeing their average prices rise above the levels of twelve months earlier and 17 authorities reporting price falls, this was in fact the first net negative balance since 2016.

East Renfrewshire was the area on the mainland with the highest annual increase in average house prices in July 2023 – up 7.7% – followed by Midlothian (5.9%) and East Lothian (4.8%). Meanwhile, Stirling had the largest fall in prices over the previous twelve months, at -6.4%.

Despite the more subdued nature of the housing market recently, several local authorities – East Renfrewshire, Midlothian, North and South Lanarkshire and West Lothian – have reported year-onyear price rises every month over the past year (albeit negligible increases in July in the case of North Lanarkshire and West Lothian).

At the other end of the spectrum, Aberdeen was the only local authority in July to have consistently experienced annual house price falls every month over the past year. However, a total of 10 authorities have seen annual price falls for the last three months or more in a row.

Monthly change

In July 2023, Scotland’s average house price declined by some £900, or -0.4% – the worst outcome since February 2023, but broadly comparable with the modest declines seen over the first quarter as a whole.

In July 2023, 10 of the 32 Local Authority areas in Scotland experienced rising prices in the month, 20 saw price falls and price movements in two – Fife and Stirling – were negligible. The net balance fell from +2 in June to -10 in July.

The distribution of local authorities with price increases in July was reasonably even, with 5 in the top half when ranked by price and 5 in the lower half.

The largest increase in average prices in the month was in Argyll and Bute, up by 5.2%. In second and third places are Clackmannanshire (3.8%) and Na h-Eileanan Siar (3.0%).

Peak Prices

In Table 2 above, those areas which have reached a new record in their average house prices are highlighted in light blue. In July 2023, there were 3 such authorities, down from five in June. Interestingly, the highest local authority area with a record average price this month is Glasgow, ranked in 15th place by value and featuring for the second month in a row.

Transactions analysis

Figure 2 below shows the monthly transaction count for purchases during the period from January 2021 to date, based on Registers of Scotland (RoS) figures for the Date of Entry (except for July 2023, which is based on RoS Application Dates).

As the focus here is on recent market trends, we will not look closely at how the Covid epidemic, and measures taken in response, affected Scotland’s property market (a topic covered in previous news releases). Suffice to say that 2021 – the brown line – was not a typical year, with the early months characterised by a peak in sales and subsequent slump associated with a LBTT tax-holiday being discontinued from the end of Q1.

Sales returned slowly to relatively high levels as the mantra for “the race for space” and “working from home” took hold. Taken as a whole, 2021 proved to be something of a high-water mark for the market, with the year recording the highest number of sales averaging about 9,500 transactions per month.

Although 2022 – the pink line – started well with an average 8,400 sales per month to the end of August, Liz Truss came into power on 6 September 2022, with her mini-budget raising the interest rate to 2.25%, on 22 September 2022. Ms Truss departed as Prime Minister on 25 October 2022. The bank rate was further increased on 3 November and 15 December 2022, ending the year at 3.5%. The graph shows the decline in monthly transactions over the period from October to December 2022.

Figure 2. The number of sales per month recorded by RoS based on entry date from 2021 – 2023

Finally, the black line charts 2023. This year started with the lowest volume of January sales of the last nine years, at 5,871 transactions. Although sales have picked up since then, total sales for the first seven months of the year – at nearly 52,000 – are about 10% lower than 2022 and (other than the Covid year 2020) the lowest since 2013. The Bank rate is one of the prime reasons for the slowing in sales, having reached 5.25% at the time of writing – its highest level of the last 15 years.

Scotland transactions of £750k or higher

Table 3. The number of transactions by month in Scotland greater than or equal to £750k, January 2015 – July 2023

Table 3 shows the number of transactions per month in Scotland which are equal to or greater than £750k. The threshold of £750k has been selected as it is the breakpoint at which the highest rate of LBTT becomes payable.

There were 66 such transactions recorded by RoS relating to July 2023. Currently, this is the thirdhighest July total recorded to date, and although we can expect RoS will process further high-value properties for the month, it looks set to remain comfortably below corresponding levels in 2021 and 2022.

Looking at the number of high-value properties sold in the first seven months of each year in Table 3, 2022 is ranked first with 642 high-value sales, followed by 2021 – when sales were boosted prior to the ending of the Covid related LBTT tax-holiday in April of that year – with 591. 2023 is ranked in third place.

However, there is a clear trend, in that the totals in each of the first seven months of 2023 are lower than a year earlier. In aggregate, these declines are larger than the downturn in the market as a whole, indicating that last year’s enthusiasm for the purchase of high-value homes has dissipated at least for the time being.

Edinburgh accounts for 246 of the 504 high-value sales (49%) that have been recorded to date by RoS in 2023. This compares to 50% in 2022 and is consistent with the gently declining importance of Edinburgh sales based on this metric, from its peak of nearer 60% a few years back. Glasgow and East Lothian continue to vie for second place, with cumulative sales of 32 and 30 high-value homes respectively so far this year. Several other local authorities – Fife, East Renfrewshire, Perth and Kinross, and Stirling – account for a further 20+ sales apiece, but these six local authorities combined account for just over 30% of this top-end market.

Heat Map

The heat map below shows the rate of house price growth for the 12 months ending July 2023. As reported above, 15 of the 32 local authority areas in Scotland have seen a rise in their average property values over the last year.

How Scotland Compares

Figure 3. Scotland house prices, compared with England and Wales, North East and North West for the period January 2005-July 2023

Figure 4. A comparison of the annual change in house prices in Scotland, England and Wales, North East and North West for the period January 2020–July 2023

Scotland’s Eight Cities

Figure 5. Average house prices for Scotland’s eight cities from May 2022–July 2023

Figure 6. Average house prices for Scotland’s eight cities July 2023