Scottish Housing Market Review Q3 2023

Key points

Sales

• Transactions appear to be slowing in response to higher interest rates: Registers of Scotland data show that residential sales across Scotland fell by 6.5% relative to Q2 2022, and by 8.9% relative to Q2 2019, prior to the pandemic. Revenue Scotland data, which is more up-to-date, shows that over the period January to August 2023, Land and Buildings Transaction Tax (LBTT) returns were 8.8% below the corresponding months in 2019.

House Prices

• Higher interest rates are also weighing on the previously elevated level of house-price inflation, which has fallen from its recent peak of 13.3% in Q3 2021 to 1.0% in Q2 2023. [Source: UK House Price Index (HPI)]
• Whereas the strongest annual price growth was recorded for detached houses as the market emerged from covid restrictions, recently the gap in price growth between different house types has narrowed.
• House price inflation has been higher for new-build properties than for existing build: in Q1 2023, new-build prices increased by an annual 10.8% while existing build prices increased by 0.4% (note these figures are one quarter behind other HPI data).

Private Rental Sector

• Private housing rental prices for new lets (which are not subject to the Cost of Living (Tenant Protection) (Scotland) Act) continue to increase. In Q2 2023, letting agencies Citylets and Rightmove recorded annual private rental increases in Scotland of 11.4% and 13.7%, respectively.
• Measures relating to the private rented sector under the Cost of Living (Tenant Protection) (Scotland) Act have been extended to 31^st March 2024 at the latest.

Mortgage Lending

• Lending to both first-time buyers and home movers has fallen relative to pre-pandemic levels: in 2022-23, new mortgage advances to first-time buyers in Scotland decreased by 13.2% and to home movers by 12.0% compared to 2019-20. [Source: UK Finance].
• There has been a significant fall in mortgage approvals (a leading indicator of housing-market activity). In the first eight months of 2023, approvals in the UK have on average been 26% lower than they were in the corresponding months of 2019. [Source: Bank of England]
• While there has been significant volatility in mortgage product numbers, the total number of residential mortgage products on 1 September 2023 was 37% higher than a year earlier, prior to the UK Government mini-budget, and the total number of buy-to-let mortgage products was up by 19% over the year. In contrast, the number of residential mortgages with a maximum LTV of 95% was down by 11% over the year. [Source: Moneyfacts]
• After 14 consecutive increases, the Bank of England left Bank Rate unchanged at 5.25% at the September Monetary Policy Committee meeting. This has translated into a decrease in mortgage rates, with the average advertised 2-year mortgage rate standing at 6.50% on 28^th September as compared to 6.85% on 1 August 2023, and the average advertised 5-year rate dipping below 6% to stand at 5.99%, as compared to 6.37% on 1 August 2023. [Source: Moneyfacts].
• Despite these recent decrease, the longer-term increase in mortgage rates is reflected in affordability ratios: for home movers, mortgage payments as a share of borrower income for new loans has increased from a low of 15.7% in Q3 2020 to 18.2% in Q2 2023, while for first-time buyers it has increased from a low of 15.3% in Q2 2020 to 19.1% in Q2 2023. [Source: UK Finance].
• The number of regulated mortgage accounts entering arrears across the UK rose by an annual 58% in Q2 2023, the highest level since Q1 2016, although the number of new regulated possessions fell by an annual 14% and was 42% below its average for 2019-20. [Source: FCA]
• For non-regulated mortgages (which include buy-to-let (BTL) mortgages), balances in cases where mortgages were 1.5% or more in arrears represented 1.2% of total loan balances at the end of Q2 2023, the highest figure since Q4 2016, although possessions during Q2 2023 were 13% below their average for 2019-20. [Source: FCA]. UK Finance data shows that there were 13,760 BTL mortgages in arrears of 1.5% or more of the outstanding balance across the UK at the end of Q2 2023, up by an annual 81%, while the share of all BTL mortgages which were in arrears of 1.5% or more, at 0.68%, was at its highest level since 2013. There was a 26% annual increase in BTL properties taken into possession in Q2 2023, but this was 31% below the level in Q1 2020, immediately prior to the pandemic.

Homelessness

• In 2022-23, homelessness applications (up by an annual 9%) and assessments (up 10%) were at their highest since 2012-13 and 2011-12 respectively, while the number of households in temporary accommodation was at its highest since the time series began in 2017-18. [Source: Scottish Government]

Housing Supply

• There were 23,346 all-sector new-build homes completed in the year ending Q2 2023, an annual increase of 6.8%. However, the number of new-build homes started decreased by 11.8% to 17,425. [Source: Scottish Government]
• A total of 10,757 affordable homes were delivered in the year to Q2 2023, an annual increase of 12.4%. However, approvals and starts have decreased over the year to Q2 2023, by 22.2% and 2.5% respectively.

Housebuilding Material Prices

• Price inflation of construction materials used in new house building, which had reached 24.0% in June 2022, has fallen sharply, moving into negative territory (‑1.5%) in July 2023.

Data to: 29 September 2023

Contact: Jake.Forsyth@gov.scot; Bruce.Teubes@gov.scot