Annual house price growth in Scotland twice that of rest of UK

House prices remain resilient in Scotland despite property tax change and are up 10.3% year on year, twice the annual growth seen in England and Wales.

The average house prices is now £180,892, according to the latest LSL house price index, but values fell by 2.1% in May which is regarded as being due to the introduction of the new Land and Buildings Transaction Tax (LBTT).

Indeed the tax has also put a brake on sales which declined 10% month on month, and again this figure is affected by the LBTT as there was a rush of sales being completed before it was introduced in April.

The tax had the most impact on the £1 million plus property sector with only one property in this price band sold in two months. Properties over £750,000 now pay 12% in tax.

But generally the market is in good shape, according to the report. In Glasgow, for example, house prices finally surpassed 2007 levels, reaching a new record of £146,286 due to high demand.

‘Two months into Scotland’s new transaction tax regime, and the impact of the overhaul is still reverberating around the property market,’ said Christine Campbell, Your Move managing director in Scotland.

She explained that the general election was a fresh source of uncertainty for those considering the best time to move home and it has been an up and down time for buyers and sellers and as a result it is harder to make out the underlying course of the market.
‘Yet the trends that can be gleaned are positive. Scottish house prices are up by more than 10% on an annual basis, and the sentiment from buyers in our branches is upbeat as the stability of the housing recovery shines though,’ said Campbell.

‘There is no denying that the recent tax turbulence has affected property prices in the shorter term, with the latest monthly dip testament to further shock waves of the LBTT, as the market continues to absorb the change. May’s monthly fall of 2.1%, equal to £4,000, is the largest backwards step we’ve experienced for nearly six years,’ she pointed out.

However, she also pointed out that this must be considered in the context of following an exceptional leap in March, when prices soared a record breaking £16,000 as a result of frenetic movement at the top end of the housing market, with 84 properties worth £1 million or more changing hands before the stamp duty switchover.

‘But since the new regime was enforced, there’s been only one million pound home sold in Scotland in the past two months, which is reining back current measures of growth,’ she added.

During May, it was the most expensive parts of Scotland that saw average property prices slip backwards, in absence of some higher value sales. For example, house prices in Edinburgh have dropped 5.7% since April, while East Lothian saw an 11.2% monthly drop in May.
‘But overall, the downwards correction we’re seeing in May has not undone the progress that’s been made so far this year. In the midst of all this disruption, Scottish house prices have up 7.6% or £12,747 since January.

‘In another sign of the strength at the core of the housing recovery, May also marks a considerable breakthrough for Scotland’s second city with average house prices in Glasgow finally exceeding their 2007 housing boom high, and reaching a new peak,’ Campbell said.

‘Tenacious demand for homes has been the key driver propelling prices out of the shadow of the financial crisis, and Glasgow has seen the most property sales in Scotland in 2015 so far, accounting for 12.5% of all activity in the housing market. The average price for a flat in the city has risen from £105,000 in 2014 to £120,000 in 2015,’ she added.
Campbell predicts that sales figures will not settle back into a more natural level. ‘There was a 15% spike in home sales in the immediate run-up to the introduction of the new tax. In contrast, there were just 7,386 sales in May 2015, 10% lower than April levels as activity returns to normal, and starts to iron out the recent discrepancies,’ she explained.

‘With the vast majority of Scottish home buyers likely to be budgeting less than £254,000, and so benefiting from reduced transaction costs under the new banding, activity should soon settle back into its natural stride once more,’ she concluded.