Scottish Housing Market Review: Q3 2021

Key points for this issue

Sales

• Housing market activity appears to be stabilising at more normal levels, with Registers of Scotland statistics showing that there were 26,324 residential property sales registered across Scotland in Q2 2021. Whilst this was an annual increase of 181.9%, this can be explained by the low level of transactions in Q2 2020 as a result of the home move restrictions. Relative to the 4 year average for Q2 (2016 – 2019), transactions were up by 2.2%.
• The increase in transactions in the latest 12 months to Q2 2021 was experienced across Scotland, with the largest increase in Aberdeen/shire and Moray, and the smallest in the Forth Valley. (Source: Registers of Scotland)
• More recent data using residential LBTT returns indicates that housing market activity is returning to more normal levels, with LBTT returns in August 2021 8.3% higher than the 2016-2019 average, down from 18.2% and 12.1% in June and July 2021. (Source: Revenue Scotland)

House Prices

• The average Scottish house price increased by an annual 10.0% in Q2 2021, the highest quarterly house price inflation rate since Q1 2008, prior to the financial crisis. (Source: UK HPI)
• The strongest annual price growth by property type was for detached and terraced properties, 11.1% and 10.9% respectively. Flats increased by the lowest amount, increasing by an annual 8.6%. (Source: UK HPI)

Rental Prices

• Private housing rental price growth remains moderate, rising by an annual 1.6% in nominal terms but falling by 1.6% in real terms in August 2021, due to a spike in CPI inflation in August. (Source: ONS)

Lending

• There has been a reduction in high LTV mortgage lending due to the impact of Covid-19. Data from the FCA for Q2 2021 shows that 2.0% of gross mortgage advances in the UK had an LTV ratio over 90%, down 2.8 percentage points on Q2 2020. (Source: FCA). However, recently there has been a strong recovery in the number of high LTV products, with the number of 95% LTV mortgages products increasing from 8 in December 2020 to 283 in September 2021. (Source: Moneyfacts Mortgage Treasury Report).
• New mortgages to first-time buyers in Scotland increased by 35.0% over the one year period to Q2 2021 relative to the year prior, while new mortgages to home movers increased by 30.0%. Relative to the 4 year average for Q2 (2016 – 2019), new mortgages advanced to first-time buyers are up 6.4%, whilst for home movers they have fallen 5.2% (Source: UK Finance)
• The interest rate premium on high LTV mortgages has fallen since May 2021. In August 2021, the spread between the average advertised 2 year fixed 90% LTV and 75% LTV mortgage rate was 124 basis points, down from 182 basis points in May 2021, potentially reflecting an increase in lender risk appetite. (Source: Bank of England)

Housing Supply

• There were 15,852 new build homes completed over the one year period to September 2020, an annual decrease of 28% (6,132 homes) on the previous year, with activity levels being affected by the introduction of COVID-19 lockdown measures from March to late June 2020. (Source: Scottish Government).
• Private New Build Sales have increased since the restrictions on non-essential construction activity were lifted, with the number of sales across the period January 2021 to May 2021 being broadly in line with activity levels seen in the 2019 pre-pandemic period. (Source: UK HPI)
• A total of 1,595 affordable homes were delivered in Q2 2021, an annual increase of 1,398 on Q2 2020 during which activity was largely paused due to lockdown measures, although the number of homes delivered in the 12 months to Q2 2021 is down 5% (374 homes) to 7,864 completions, compared with the previous year. Over the last year, approvals have dropped by 36% to 7,972 whilst starts have increased by 3% to 11,097.

Housebuilding Material Prices

• Construction material price inflation has accelerated since the early stages of the Covid-19 pandemic, when it was in negative territory, to stand at 19.8% in July 2021.

Data to: 30 September 2021

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