Scottish Housing Market Review Q1 2023

Key points for this issue

Sales

• After significant volatility in housing market activity following the Covid-19 pandemic, Registers of Scotland statistics indicate house sales in Q4 2022 were close to their pre-pandemic levels, with residential property transactions up 0.2% in Q4 2022 relative to the 2016 – 2019 average for Q4.
• However, more recent residential LBTT returns, available to February 2023, suggest that activity has been weakening, with LBTT returns for the period December 2022 – February 2023 9.7% lower than in the corresponding months of 2019 (Source: Revenue Scotland)

House Prices

• The elevated level of house price growth since the Covid-19 pandemic continued in Q4 2022, although there are signs of a significant slowdown in house price growth, with the average (geometric mean) Scottish house price increasing by an annual 6.5% to £190K down from 11.7% in Q2 2022. The most recent figure for January 2023 of 1.0% provides further evidence that house price growth is moderating. (Source: UK HPI)
• The strongest annual price growth by property type in Q4 2022 was for detached properties, up by an annual 9.4%, whilst flats increased by the lowest amount, up by 3.1%. (Source: UK HPI)
• The average new build property price increased by an annual 11.0% to £280k in Q3 2022, higher than the increase on the average existing build price of 7.7% (note these figures are one quarter behind other HPI data). (Source: UK HPI)

Rental Prices

• Private housing rental prices continued to increase. Latest ONS figures to February 2023 show an annual 4.9% increase in nominal terms across all tenancies in Scotland, although caution is needed in interpreting this figure given the methodology used for these experimental statistics is unlikely to fully account for the Scottish rent freeze context. (Source: ONS). Separate letting agent data, which reflect advertised rents only, show higher growth rates in recent months.
• The Cost of Living (Tenant Protection) Act has been extended to 30 September 2023, with the changes to the Act meaning that from 1 April 2023 if a private landlord chooses to increase a tenant’s rent mid-tenancy then the increase will be capped at 3% (previously 0%). Private landlords will alternatively be able to apply for a rent increase of up to 6% (previously 3%) to help cover certain increases in costs in defined and limited circumstances. Enforcement of evictions will continue to be paused for up to six months except in a number of specified circumstances.

Lending

• Lending to both first-time buyers and home movers fell in Q4 2022, with new mortgage advances to first-time buyers decreasing by an annual 11.4% whilst for home movers they decreased by 5.2%. Increases in interest rates, as well as market volatility after the UKG Plan for Growth/mini-Budget on 23 September 2022, are likely to have contributed to this fall. (Source: UK Finance).
• Although the number of 95% LTV products has shown some recovery in recent months, reaching 161 on 1 March 2023 relative to 132 on 1 October 2022, this remains substantially below levels prior to the UKG Plan for Growth/mini-budget in September, with over 300 products available during the first eight months of 2022. In contrast, non-high LTV mortgage products, which also fell sharply in September, have now largely recovered, such that total mortgage product numbers, at 4,372 on 1 March 2023, are not far off their level of 4,407 on 1 August 2022. (Source: Moneyfacts).
• The Bank of England has increased the Base Rate eleven times since December 2021, taking the rate from 0.1% to 4.25%. A 415 basis point increase is estimated to increase the monthly payments by around £370 on an average new variable rate regulated mortgage and by £200 on an average outstanding variable rate regulated mortgage in Scotland.
• The Bank Rate increases and market volatility following the UKG Plan for Growth/mini-Budget caused sharp increases in mortgage rates, with the average quoted two-year and five-year fixed mortgage rates reaching 6.65% and 6.51% on 20 October. However, more recently they have fallen back somewhat to 5.32% and 5.00% respectively as at 1 March 2023. (Source: Moneyfacts)
• The number of regulated mortgages entering arrears across the UK rose by an annual 36.0% in Q4 2022, although from a low base; relative to the pre-pandemic level in Q4 2019, they fell by 7.6%. Similarly, while new regulated mortgage possessions in the UK rose to 661 in Q4 2022 (an annual increase of 53.0%), this is down from 1,319 in Q4 2019. (Source: UK Finance)

Housing Supply

• There were 22,905 all-sector new build homes completed over the one year period to Q3 2022, an annual increase of 9.7% (2,023 homes) on the previous year, the highest annual figure to end September since 2008. There were also 19,227 new build starts across all sectors in the year to end Q3 2022. (Source: SG).
• A total of 9,727 affordable homes were delivered over the one year period to Q4 2022, an increase of 1.2% on the year prior. Approvals and starts have decreased over the one year period to Q4 2022, potentially due to the ongoing challenges with price inflation, materials and labour in the construction sector.

Housebuilding Material Prices

• Construction output price inflation for new public and private housing increased by 11.0% annually to December 2022. One of the drivers of output price inflation has been large increases in the prices of construction materials used in new build, although the annual growth rate has moderated from 24.0% in June 2022 to 7.7% in January 2023. Source (ONS and BEIS)
• The growth in construction output prices has likely contributed to an increase in construction company insolvencies in Q4 2022. There were 60 insolvencies of construction companies registered in Scotland, up by 30.4% relative to the 2017 – 2019 average for Q4. There were 1,052 insolvencies of construction companies registered in England and Wales, 50.4% above the 2017 – 2019 average for Q4, and the highest level since Q1 2012. (Source: The Insolvency Service)

Data to: 31 March 2023

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