The last year in Scotland has been remarkable for both the sales and lettings market, according to David Alexander, the chief executive officer of DJ Alexander Scotland, which is part of the Lomond Group.
He points out that the boom in sales which began during the first lockdown of the pandemic continued for most of the year and it is only in the Autumn when average prices peaked only now appear to be starting to decline
He explained: “The rapid base rate rises have induced a slight sense of panic among buyers who have spent more than a decade with historically low rates. The sudden increase in base rates this year has shocked many buyers who have only known static mortgage rates and have never experienced anything like this in their lives.”
“But the sudden increase in base rates was expected as the market was overdue a correction as double-digit annual price rises are unsustainable over a prolonged period. The housing sector in Scotland traditionally has annual increases in the two to three per cent range which is sustainable and stable in the long term. Very high average price increases over a relatively short period are generally followed by a stabilising period and then a fall in prices.”
“Geographically there are quite marked differences in the performance of our major cities with Edinburgh prices soaring with the average now £140,325 higher than the rest of Scotland. Prices in Dundee have increased by 11.6% which is the highest rate of all cities in Scotland and the average exceeded Aberdeen in April for the first time ever.”
“Real price increases have been remarkable for detached houses over the last year. In the capital detached homes have an average price of £772,085 which is more than double the Scottish average of £355,862; Glasgow is on £473,422; Scotland is at £355,362; Aberdeen is £353,350; and Dundee is £344,828. To put this in perspective in the first ten months of 2022 the average price of a detached home in Edinburgh increased by £70,182 which equates to £230.86 per day!”
Alexander continued: “The last year has also seen a growing divide between Scotland and the rest of the UK in the application of stamp duty. The reduction in Stamp Duty Land Tax (SDLT) confirmed by Chancellor Jeremy Hunt in the Autumn statement now means an enormous difference in how much homebuyers are taxed on either side of the border. The failure by John Swinney in the recent Scottish budget to unify property taxes means that first time buyers, those buying a home worth more than £325,001, and those investing in a second home, or as a landlord or property investor are paying punitively high levels of tax to purchase property. The result is that there is a danger that any potential fall in the property market in the coming year will be exacerbated in Scotland because home buying is taxed at a much higher rate.”
“The Autumn statement also confirmed that the nil rate Inheritance Tax (IHT) threshold of £325,000 is to be frozen until 2028 which means that more homeowners will pay greater tax on their estates for the next five years. By 2028 this will mean that the IHT threshold will have been frozen for 20 years with inflation eroding its value substantially over the intervening two decades. If the IHT nil rate threshold had kept pace with inflation it should, by October 2022, be at £473,784 which is 45.8% higher than it currently is. This figure has increased by £9,141 over the course of the last month due to double digit inflation and will rise substantially over the coming years to make it worth a quarter or less by 2028.”
For the rental market in Scotland undoubtedly the biggest issue in 2022 was the introduction of the rent freeze in September. This move was opposed by universities, local councils, housing associations, the Build to Rent sector, farming organisations, Scottish Land and Estates, the lettings industry, landlords, and property investors.
According to Alexander, this action dealt a severe blow to the sector which was already struggling with unprecedented demand and limited supply. Prior to the introduction of the rent freeze the sector had never experienced demand like this in 40 years and yet this move to limit rents has simply exacerbated what was already an extremely difficult market.
He commented: “Rents have already risen at double digit levels, supply has weakened, and investment in construction of buildings for the private rented sector has been put on hold until some clarity emerges about whether the rent freeze remains in place beyond the 31st of March 2023. If the policy continues beyond this date, then this will be a clear indication that the Scottish Government is intent on forcing the private rented sector to solely bear the burden of funding the current housing crisis in Scotland. Rent control has not worked in any country in the world so the idea that Scotland will somehow succeed seems unlikely. The resulting shrinking of the size of the private rented sector coupled with a reduction in funding for social housing will result in even greater shortages for tenants in the future.”
He added: “The last year has seen extraordinary demand in the private rented sector which shows no sign of improving in the coming year. I believe that this situation will only get worse for tenants in 2023 given the Scottish government’s current direction of travel. For the homebuying public the last year has been something of a rollercoaster. I think the next year will be calmer and quieter and as long as interest rates don’t go substantially higher then I believe that we will see a slowing of price rises without any serious price fall and a period of greater stability in 2023.”
Average house prices
Location January 2022 October 2022 % difference
Scotland £183,445 £194,874 6.2%
Glasgow £166,795 £175,675 5.3%
Edinburgh £311,169 £335,199 7.7%
Dundee £140,132 £156,400 11.6%
Aberdeen £142,982 £143,948 0.7%
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