Scottish Housing Market Review – Q4 2021

Key points for this issue

Sales

• After a period of significant volatility, housing market activity in Q3 2021 appeared to be stabilising at more normal levels, with Registers of Scotland statistics showing that there were 31,663 residential property sales registered across Scotland in Q3 2021. Whilst this was an annual increase of 53.9%, this can be explained by the low level of transactions in Q3 2020. Relative to the 4 year average for Q3 (2016 – 2019), transactions were up by 12.0%.
• The increase in transactions was experienced across Scotland, with the largest increase in Aberdeen/shire and Moray, and the smallest in the Forth Valley. (Source: Registers of Scotland)
• Residential LBTT returns show that the stabilisation of housing market activity above pre-pandemic levels has continued more recently, with LBTT returns in November 2021 10.7% higher than the 2016-2019 average.

House Prices

• The surge in house prices since the Covid-19 pandemic has continued, with the average Scottish house price increasing by an annual 14.5% in Q3 2021, to £179K. This is the highest quarterly increase since Q1 2008, prior to the financial crisis. (Source: UK HPI)
• The strongest annual price growth by property type in Q3 2021 was for detached properties, up by an annual 18.1%, whilst flats increased by the lowest amount, increasing by 10.8%. (Source: UK HPI)

Rental Prices

• Private housing rental price growth remains moderate, rising by an annual 2.0% in nominal terms but falling by 3.0% in real terms in November, due to a spike in CPI inflation in recent months (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 Q3 2021 shows that 4.2% of gross mortgage advances in the UK had an LTV ratio over 90%, up 0.6 percentage points on Q3 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 8 in January 2021 to 347 in January 2022. (Source: Moneyfacts Mortgage Treasury Report).
• New mortgages to first-time buyers in Scotland increased by 42.3% over the one year period to Q3 2021 relative to the year prior, while new mortgages to home movers increased by 45.0%. Relative to the 4 year average for Q3 (2016 – 2019), new mortgages advanced to first-time buyers are up 17.3%, whilst for home movers they have increased by 11.0%. (Source: UK Finance).
• The interest rate premium on high LTV mortgages has returned to pre-pandemic levels. In October 2021, the spread between the average advertised 2 year fixed 90% LTV and 75% LTV mortgage rate was 50 basis points, down from 182 basis points in February 2021 and broadly similar with levels seen in May 2020 (54 basis points). (Source: Bank of England).
• While there was an 89% increase in new regulated mortgage possessions across the UK in Q3 2021, as a result of FCA restrictions on possessions being lifted on 1 April 2021, at 453 the level of possessions remains significantly below pre-pandemic levels.

Housing Supply

• There were 14,834 all-sector new build homes completed over the one year period to December 2020, an annual decrease of 34.6% (7,839 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).
• 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 August 2021 increasing by 19.4% relative to the previous year. (Source: UK HPI)
• A total of 2,094 affordable homes were delivered in Q3 2021, an increase of 917 on Q3 2020. In addition, the number of homes delivered in the 12 months to Q3 2021 increased by 20.0% (1,464 homes) to 8,792 completions, compared with the previous year. Over the last year, approvals have dropped by 23.4% to 8,581 whilst starts decreased by 3.4% to 10,023. (Source: SG).

Housebuilding Material Prices

• Since the early stages of the Covid-19 pandemic, when it was in negative territory, construction material price inflation has accelerated significantly, to stand at 21.0% in November 2021. However, this is a slight decrease from the annual increase to October 2021 (22.6%).

Data to: 13 January 2022

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