Scottish Housing Market Review: Q4 2022

Key points for this issue

Sales

• After significant volatility in housing market activity following the Covid-19 pandemic, house sales appear to have stabilised around pre-pandemic levels, with Registers of Scotland statistics showing an increase of 0.1% in residential property transactions in Q3 2022 relative to the 2016 – 2019 average for Q3.
• Residential LBTT returns, which are available up to November 2022, also show housing market activity stabilising around pre-pandemic levels, with LBTT returns for the first eleven months of 2022 1.0% higher than for the same period in 2019. (Source: Revenue Scotland)

House Prices

• The elevated level of house price growth since the Covid-19 pandemic continued in Q3 2022, although there are signs it might be slowing, with the average Scottish house price increasing by an annual 8.8% to £193K, down from 11.7% in Q2 2022. (Source: UK HPI)
• The strongest annual price growth by property type in Q3 2022 was for detached properties, up by an annual 10.8%, whilst flats increased by the lowest amount, up by 6.2%. (Source: UK HPI)
• The average new build property price increased by an annual 15.2% to £274k in Q2 2022, which is higher than the increase on the average existing build price rose of 11.2%. This can be partly explained by the rise in new build construction materials. (Source: UK HPI)

Rental Prices

• Private housing rental prices continued to increase in November 2022, rising by an annual 4.4% in nominal terms, the highest since the series began. (Source: ONS). Data based entirely on new let rents, such as letting agent data, shows higher growth rates in recent months.
• Decisions on whether to extend the protections in the Cost of Living (Tenant Protection) Act will be made in the coming weeks. Meanwhile, an agreement has been reached between the Ministers and social landlords for below-inflation rent increases for the 2023-24 financial year.

Lending

• Lending to both first-time buyers and home movers fell in Q3 2022, with new mortgage advances to first-time buyers decreasing by an annual 15.9% whilst for home movers they decreased by 8.1%. The large annual decrease can be explained by the high number of new mortgages advanced in Q3 2021 and rises in interest rates (Source: UK Finance).
• The Bank of England has increased the Base Rate nine times since December 2021, taking the rate from 0.1% to 3.5%. A 340 basis point increase is estimated to increase the monthly payment by around £300 on an average new variable rate mortgage and by £170 on an average outstanding variable rate 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 two-year and five-year fixed mortgage rates reaching 6.65% and 6.51% on 20 October, before falling to 6.01% and 5.80% respectively as at 1 December. (Source: Moneyfacts)
• The market volatility also led to a sharp fall in the number of residential mortgage products, with residential mortgage products falling from 4,407 in August 2022 to 2,258 in October 2022, although there has been some recovery more recently. (Source: Moneyfacts)
• The number of regulated mortgages entering arrears across the UK rose by an annual 17.2% in Q3 2022, although from a low base; relative to the pre-pandemic level in Q3 2019, they fell by 14.7%.Similarly, while new regulated mortgage possessions in the UK rose by an annual 26.2% in Q3 2022, they were 21.1% lower than the pre-pandemic level in Q3 2019.(Source: UK Finance)

Housing Supply

• The next update to new build starts and completions will be published on 24^th January 2023. Meanwhile, after a sharp fall following the impact of Covid-19, private new build sales have returned to pre-pandemic levels, with the number of transactions over the one year period to August 2022 increasing by 2.0% relative to the one year period to August 2019. (Source: UK HPI)

Housebuilding Material Prices

• Construction output price inflation for new public and private housing increased by 10.5% annually in September 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 10.1% in October 2022. Source (ONS and BEIS)
• The growth in construction material prices has likely contributed to the number of insolvencies of construction companies registered in England and Wales in the first three quarters of 2022 being at their highest level in a decade; however, for construction companies registered in Scotland, the 48 insolvencies in Q3 2022 was in line with the 2016 – 2019 average for Q3. (Source: The Insolvency Service)

Data to: 30 December 2022

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