Research article

Strongest market in a decade

With increases recorded in both transaction numbers and prices, Scotland's residential property market looks set to enter a new period of growth

Scotland has witnessed its strongest residential market in a decade, with 103,648 transactions during 2017. This figure out-performed the previous 10-year record set during 2008 when 102,855 transactions took place. Market activity last year was 4% higher than 2016, outperforming the UK, which saw a slight drop of 1% last year.

Figure 1

FIGURE 1Top performers: 2017 v 2016

Source: Registers of Scotland

Prime activity surpasses 2007 level

The bulk of residential activity in Scotland takes place below £200,000. However, the strongest growth last year took place in the prime market above £400,000, which recorded a 23% annual increase. Annual transactions in this price band reached 4,936 in 2017, which surpassed the previous record of 4,790 during 2007.

Residential activity above £750,000 took a hit during 2016 due to high levels of Land and Buildings Transaction Tax (LBTT). However, a resurgence in activity, especially during the second half of 2017, pushed annual transactions to 534, compared to 466 in 2016, as buyers and sellers began to adjust to LBTT.

House price growth outperforms London

The rise in activity in higher price bands is being reflected in price growth across Scotland. According to the Registers of Scotland, the average transaction price increased annually by 4% in 2017. The kamaco Repeat Sales index showed a 5.3% annual increase in Scottish house prices in December 2017, led by the hubs of Edinburgh and Glasgow and their surrounding suburban and commuter locations.

Scotland outperformed London, which saw a 1.7% annual increase in house prices at the end of last year. Political and taxation uncertainty, along with tighter lending criteria, continues to have an impact on the London market.

House prices in Edinburgh and Glasgow reached record levels at the end of last year, underpinned by a lack of supply in central hotspots. This led to relatively slower rates of growth in annual transactions last year, particularly in the second hand market. Meanwhile, the new build market continues to fill the supply gap, recording a 30% and 15% annual increase in transactions in Edinburgh and Glasgow during 2017 respectively.

Scotland enters a new period of growth

We expect house price growth across the UK to slow this year as political uncertainty weighs down the market. There is capacity for growth later on, but this will be tempered by interest rate rises. Price growth will be most sluggish in areas where affordability is most stretched, especially in London and its surrounding commuter belt.

Scottish house price growth has tended to be historically lower in comparison to the rest of the UK. But house prices in Scotland are expected to grow by 17% over the next five years, compared to 14% across the UK. Scotland is entering a new period, with most of our cities experiencing above average price growth, due to a lack of supply and strong local economies. The exception to the rule is Aberdeen where prices are beginning to stabilise.

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Simon Smith

Simon Smith

Senior Director / Head of Research & Consultancy
Research & Consultancy

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