Scottish Housing Market Review: Q3 2022

Key points for this issue

General

• The data in this report mostly covers the period to Q2 2022. Therefore, the recent mortgage market volatility will not be reflected in most indicators.

Sales

• Following the COVID-19 pandemic, housing market activity appeared to have returned to pre-pandemic levels by Q2 2022, with Registers of Scotland statistics showing that there were 25,331 residential property sales registered across Scotland. Whilst this was an annual decrease of 3.5%, relative to the average for Q2 (2016 - 2019) transactions were down by a more modest 1.7%.

• Residential LBTT returns which are available up to August 2022 also show housing market activity returning to pre-pandemic levels, with LBTT returns for the first eight months of 2022 0.7% higher than for the same period in 2019. (Source: Revenue Scotland).

House Prices

• The surge in house prices since the Covid-19 pandemic continued in Q2 2022, with the average Scottish house price increasing by an annual 12.4%, to £188K. (Source: UK HPI).

• The strongest annual price growth by property type in Q2 2022 was for detached properties, up by an annual 16.9%, whilst flats increased by the lowest amount, increasing by 8.3%. (Source: UK HPI).

• The average new build property price increased by an annual 19.3% to £278k in Q1 2022, which is higher than the increase on the average existing build price rose of 8.8%. 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 August 2022, rising by an annual 3.6% in nominal terms but falling by 5.7% in real terms, due to a spike in CPI inflation. (Source: ONS)
• The Scottish Parliament has passed the Cost of Living (Tenant Protection) Bill, which gives Ministers temporary power to cap rents for private and social tenants, as well as for student accommodation. The Bill also introduces a moratorium on evictions.

Lending

• Lending to both first-time buyers and home movers is approximately in line with pre-covid levels. Comparing the 12-month period to Q2 2022 against an equivalent pre-covid period (12 months to Q2 2019), new mortgage advances to first-time buyers increased by 1.1% whilst for home movers they decreased by 2.4%. (Source: UK Finance).
• The Bank of England has increased the Base Rate seven times since December 2021, taking the rate from 0.1% to 2.25%. A 215 basis point increase is estimated to increase the average monthly payment by around £180 on an average new variable rate mortgage and by £100 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 fixed mortgage rate reaching 6.16% on 7 October, its highest since November 2008, and the average five-year rate reaching 6.07%, its highest since January 2010. (Source: Moneyfacts).
• The market volatility also led to a sharp fall in the number of residential mortgage products, with the 1,632 monthly reduction from September 2022 to October 2022 being the largest since April 2020 (Source: Moneyfacts)

• There were 835 new regulated mortgage possessions in the UK in Q2 2022. While this is 35% higher than Q2 2021, it is also 33% lower than the pre-pandemic level of 1,250 in Q2 2019.

Housing Supply

• There were 20,767 all-sector new build homes completed over the one year period to Q1 2022, an annual increase of 39.7% (5,900 homes) on the previous year, in which activity levels were affected by Covid-19 related lockdown measures. There were also 18,672 new build starts across all sectors in the year to end Q1 2022, up by an annual 5.1% (914 homes). (Source: SG)
• A total of 9,334 affordable homes were delivered over the one year period to Q2 2022, an increase of 17.1% on the year prior. Over the same period approvals have fallen slightly by 2.5% to 7,775, whilst starts have decreased by 34.8% to 7,287. (Source: SG)

Housebuilding Material Prices

• Construction output price inflation for new public and private housing increased by 12.3% annually to June 2022, driven by construction material price inflation, which rose by 22.8% annually in June 2022. Construction material price inflation has slowed more recently to 13.5% to August 2022. Source (ONS and BEIS)

Data to: 11 October 2022

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