Scottish Housing Market Review: Q2 2022

Key points for this issue

Sales

• After a period of significant volatility, housing market activity appears to be stabilising at more normal levels, with Registers of Scotland statistics showing that there were 21,553 residential property sales registered across Scotland in Q1 2022. Whilst this was an annual decrease of 24.2%, this can be explained by the post-lockdown elevated level of transactions in Q1 2021. Relative to Q1 2019, transactions were up by 10.0%.
• Residential LBTT returns show that the stabilisation of housing market activity above pre-pandemic levels has continued more recently, with LBTT returns for the first five months of 2022 3.1% higher than for the same 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 10.6% in Q1 2022, to £182K. (Source: UK HPI).
• The strongest annual price growth by property type in Q1 2022 was for detached properties, up by an annual 15.3%, whilst flats increased by the lowest amount, increasing by 6.8%. (Source: UK HPI).
• The average new build property price increased by an annual 20.0% to £264k in Q4 2021, which is higher than the increase on the average existing build price rose of 9.0%. This can be partly explained by the rise in new build construction materials. (Source: UK HPI).

Rental Prices

• Private housing rental price growth has started to increase, rising by an annual 3.1% in nominal terms but falling by 5.4% in real terms in May 2022, due to a spike in CPI inflation. (Source: ONS)

Lending

• While new mortgages to first-time buyers and home movers in Scotland fell over the one year period to Q1 2022 by 9.6% and 27.4% due to the very high level of property market activity in Q1 2021, comparing the 12-month period to Q1 2022 against the previous 12 months, new mortgages to first-time-buyers increased by 13.0%, whilst for home movers there was a 6.4% increase. (Source: UK Finance).
• Following a significant reduction due to the impact of Covid-19, there has been an increase in high LTV mortgage lending recently. Data for Q1 2022 shows that 3.9% of gross mortgage advances in the UK had an LTV ratio over 90%, up 2.8 percentage points on Q1 2021. (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 14 in June 2021 to 347 in June 2022. (Source: Moneyfacts).
• The Bank of England has increased the base rate five times since December 2021, taking the rate from 0.1% to 1.25%. A 115 basis point increase is estimated to increase the average monthly payment by around £100 on an average new variable rate mortgage and by £50 on an average outstanding variable rate mortgage in Scotland.
• 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 23 basis points in May 2022, the lowest level since June 2008. (Source: BoE).
• There were 622 new regulated mortgage possessions in the UK in Q1 2022. While this is 43% higher than Q1 2021, it is also 40% lower than the pre-pandemic level of 1,042 in Q1 2020.

Housing Supply

• There were 20,056 all-sector new build homes completed over the one year period to September 2021, an annual increase of 26.3% (4,174 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 February 2022 increasing by 36.9% relative to the previous year, although the latest figure is 6.3% below the equivalent level in the year to February 2020. (Source: UK HPI)
• A total of 9,757 affordable homes were delivered over the one year period to Q1 2022, an increase of 50.6% (+3,279) on the year prior, and the highest financial year figure recorded since the start of the series in 2000-01, which meant that the target to deliver 50k affordable homes has been met. Over the last year, approvals have fallen slightly by 0.8% to 7,821, whilst starts decreased by 18.7% to 8,253. (Source: SG).

Housebuilding Material Prices

• Construction material price inflation has started to increase again since Russia's invasion of Ukraine, with a 22.0% annual increase reported in April 2022. Source (BEIS).

Data to: 30 June 2022

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