Scottish Housing Market Review: Q1 2022

Key points for this issue

Sales

• After a period of significant volatility, housing market activity in Q4 2021 appears to be stabilising at more normal levels, with Registers of Scotland statistics showing that there were 31,131 residential property sales registered across Scotland in Q4 2021. Whilst this was an annual decrease of 15.5%, this can be explained by the post-lockdown elevated level of transactions in Q4 2020. Relative to the 4 year average for Q4 (2016 – 2019), transactions were up by 8.8%.
• Residential LBTT returns show that the stabilisation of housing market activity above pre-pandemic levels has continued more recently, with LBTT returns across January and February 2022 7.9% higher than in the corresponding period in 2019. (Source: Revenue Scotland).

House Prices

• The surge in house prices since the Covid-19 pandemic has continued, with the average Scottish house price increasing by an annual 10.8% in Q4 2021, to £181K. However, the increase in house prices could be starting to slow, with house price growth down from Q3 2021 (13.5%). (Source: UK HPI).
• The strongest annual price growth by property type in Q4 2021 was for detached properties, up by an annual 15.3%, whilst flats increased by the lowest amount, increasing by 7.0%. (Source: UK HPI).
• The average new build property price increased by an annual 18.1% to £257k in Q3 2021, which is higher than the increase on the average existing build price rose of 13.0%, and which can be partly explained by the rise in new build construction materials. (Source: UK HPI).

Rental Prices

• Private housing rental price growth remains moderate, rising by an annual 2.6% in nominal terms but falling by 3.3% in real terms in February, due to a spike in CPI inflation. (Source: ONS)

Lending

• Following a significant reduction due to the impact of Covid-19, there has been an increase in high LTV mortgage lending recently. Data for Q4 2021 shows that 4.2% of gross mortgage advances in the UK had an LTV ratio over 90%, up 3.0 percentage points on Q4 2020. (Source: FCA). This has been driven by the strong recovery in the number of high LTV products, with the number of 95% LTV mortgages products increasing from 5 in March 2021 to 342 in March 2022. (Source: Moneyfacts).
• New mortgages to first-time buyers and home movers in Scotland continue to behave similarly. While they decreased by an annual 29.9% and 27.9% respectively in Q4 2021, this was due to elevated transactions in Q4 2020. Relative to the 4 year average for Q4 (2016 – 2019), new mortgages to first-time buyers were up 1.0%, whilst for home movers they were down 2.4%. (Source: UK Finance).
• The interest rate premium on high LTV mortgages is now below pre-pandemic levels. The spread between the average advertised 2 year fixed 90% LTV and 75% LTV mortgage rate, which increased from 51 basis points in April 2020 to 189 basis points in December 2020, has fallen to 27 basis points in February 2022. (Source: BoE).
• The Bank of England has increased the base rate three times since December 2021, taking the rate from 0.1% to 0.75%. A 65 basis point increase is estimated to increase the average monthly payment by £54 on new variable rate mortgage and by £29 on an outstanding variable mortgage in Scotland.
• There were 435 new regulated mortgage possessions in the UK in Q4 2021, a 4.0% decrease on Q3 2021. This remains substantially lower (-67.0%) than the pre-pandemic level of 884 in Q4 2019.

Housing Supply

• There were 18,974 all-sector new build homes completed over the one year period to June 2021, an annual increase of 10.2% (1,751 homes) on the previous year, in which activity levels were affected by Covid-19 related lockdown measures. (Source: SG).
• More recent sales transactions data shows that private new build sales have increased since the restrictions on non-essential construction activity were lifted, with the number of transactions over the year to November 2021 increasing by 22.8% relative to the previous year. (Source: UK HPI)
• A total of 9,211 affordable homes were delivered in 2021, an increase of 35.5% (+2,412) on 2020. In addition, the number of homes delivered in Q4 2021 equalled 2,159, an annual increase of 11.7% (+227). Over the last year, approvals have fallen by 17.4% to 8,398, whilst starts decreased by 4.5% to 9,679. (Source: SG).

Housebuilding Material Prices

• There was a small decrease in construction material price inflation, although it remained elevated at an annual 19.1% in January 2022, compared to a peak of 22.6% in October 2021. Source (BEIS).

Data to: 31 March 2022

Contact: William.Ellison@gov.scot; Bruce.Teubes@gov.scot