Landmark Information Group has predicted that Scotland’s property market will mirror UK-wide trends of declining activity due to affordability issues potentially diminishing buyer interest. Their latest Scottish Property Trends Report suggests this as a possible explanation.

An imbalance between demand and supply is causing prices to rise in certain areas, especially for attractive properties at reasonable prices in key locations, according to a statement released by the agency.

1. House Prices

Scotland’s house prices increased by 2.0% annually during Q1 2023, an indicator of slowing annual price inflation compared to Q3 2020, when they peaked at 3.0%—this rate being the lowest seen since mid-2010 yet still higher than the UK average of 1.9%. More recent monthly data (which tends to be more volatile) indicates this slowing trend continued into April 2023.

Scots house price increases have seen consistent annual gains since 2015, with minor fluctuations depending on quarterly and annual trends. Detached properties saw the greatest price gains, followed by flats and semi-detached properties.

Edinburgh and Glasgow remain among the cities where demand outpaces supply, leading to prices increasing more rapidly than anywhere else in Scotland, although both cases show gradual increases compared to past periods.

These regional differences are likely to have an ongoing impact on Scotland’s housing market in the near future. Declining North Sea oil jobs and increasing interest rates will wreak havoc with household finances and mortgage affordability, potentially causing prospective buyers and sellers to exercise more caution when entering or exiting markets.

Overall, Scotland remains relatively resilient despite economic challenges, as shown by the latest UK House Price Index (HPI) data. The HPI measures changes in the market value of domestic properties using data sources including the HM Land Registry and the Registers of Scotland. Sales take time to be registered and included in this index so there may be a lag between when prices are reported and when they appear in it.

The average Scottish property now costs £246,209—up 13.6% year on year from 2021 (£216,396). Edinburgh remains home to Scotland’s most expensive house; it sells for an estimated PS4 million and features a five-bedroom semi-detached property selling for approximately £4 million on average. Fife’s homes typically fetch around £3 million, while Newton Mearns in Renfrewshire, Pollokshields in Glasgow, and St Andrews are all areas that boast high average house prices, such as Newton Mearns and Renfrewshire’s five-bedroom semi-detached houses which sell fast for around £3 million each. Other areas that boast high average house prices include Newton Mearns. Renfrewshire Newton Mearns Renfrewshire Pollokshields in Glasgow St Andrews and East Lothian are among the others that boast high average house prices, such as Newton Mearns. Renfrewshire’s Pollokshields Glasgow as well as St Andrews East Lothian, among many more!

2. Mortgages

As mortgages play such an essential role in the housing market, any changes in their landscape could have profound effects on the direction and price of homes. With interest rates steadily climbing higher and house purchases becoming more costly as a result, we anticipate this impacting prices significantly as well.

While the overall picture may be less than optimistic, some areas are defying this trend and seeing their property values rise. Edinburgh in Scotland has seen some of the greatest increases; its property prices increased 3.5% year over year and reached their all-time peak in May 2023.

However, many potential buyers still find it difficult to obtain a mortgage due to a combination of factors. One major contributor is a lack of wage growth in Scotland, which limits their income and ability to afford higher mortgage rates. This particularly affects first-time buyers trying to save up a deposit against rising house prices.

So far this year, property transactions in Scotland are decreasing. Registers of Scotland figures revealed sales declining by 1.9% year-on-year for Q1 2023 when compared with Q1 2022, compared with sales being driven down further by the Land and Buildings Transaction Tax (LBTT), further discouraging buyers.

Mortgages remain available, although lenders have tightened their criteria significantly, making it even more critical that borrowers contact multiple lenders prior to making any decisions. It is also worth keeping in mind that the Scottish mortgage market can be more complicated than in England so it is wise to gain as much knowledge of how everything operates before taking any action.

Scottish sellers must submit a “home report”, similar to a property valuation report used by mortgage companies to assess risk when lending on any particular property. First-time buyers should take this legal requirement into consideration when searching for financing solutions.

3. Renting

Landmark Information Group’s most recent property trends report revealed that Scotland’s housing market exhibited remarkable resilience despite economic challenges and fluctuating interest rates, according to listings data for Q3 2018. Listings were up 5 percentage points year-on-year, outpacing the average for this time of year by 7 percent; legal reports and completion data also demonstrated this resilience.

However, the report also revealed that demand for properties has remained limited despite low inventory levels in the mainstream market. This trend was most evident at the top end of the market, where demand from discretionary buyers decreased as they transitioned away from rural village life in favour of urban commutable addresses near excellent schools; prices of PS2 million+ country houses saw an annual decrease of 2.6% quarterly drop off.

Survey findings also indicated that buy-to-let investors remained highly active in the mainstream market for realistically priced properties up to £600,000. However, investors could face rising energy bills or regulatory changes, which would erode returns over time.

Rettie & Co’s report illustrated how many first-time buyers remain unable to gain entry onto the property ladder due to rising property prices south of the border, particularly in London, where supply can be altered by rich foreign owners, compounded with landlords pulling back from the Private Rented Sector (PRS), leading to limited properties available and higher advertised rents.

The upmarket estate agent predicted that due to several factors, Scottish house price growth will gradually slow this year and return to levels seen in 2021. These include wages growing more slowly than elsewhere in the UK and leaving buyers without enough income to cover mortgage payments as interest rates increase; concurrently, population growth slowing in Scotland is decreasing their ability to purchase a property, all contributing to demand being held back due to affordability issues, resulting in sales being decreased as demand decreases further. As with England and Wales markets before it, Scottish markets could follow similar patterns seen across England and Wales, resulting in reduced sales as demand due to affordability issues being held back from purchasers due to affordability issues affecting buyers’ income levels, leaving buyers lacking income to cover mortgage payments at increasing interest rate increases as interest rates continue their annual increase due to interest rate increases being passed along in line with these other two areas, resulting in 2021 being similar. This trend is being repeated.

4. Buying

The purchase of a house is usually the biggest financial decision most of us ever make in our lives and it’s essential that it go smoothly. There are various considerations involved with purchasing Scottish property, from getting a mortgage to locating solicitors and carrying out surveys. Having all this information at your fingertips will allow you to determine whether Scottish real estate is indeed right for you.

Scotland’s housing market remains fairly resilient despite speculations of interest rate increases dampening demand. DJ Alexander estate agents conducted market analysis that shows prices in Edinburgh and Glasgow rose around 3% year-on-year, with major variations across Scotland. Argyle and Bute proved particularly resilient, while the Highlands and Islands performed best of all areas studied.

Experts anticipate that Scottish house prices will continue to rise, but at a more gradual pace than elsewhere in the UK, due to various factors, including lower wage growth, falling oil revenues, and slower population growth. Many would-be buyers may find themselves priced out of areas with high average values, like central Edinburgh or the Highlands, due to rising average values.

Registers of Scotland figures show that sales activity dropped slightly during Q1 2023 when compared to Q1 2022, though still far above pre-pandemic levels. Anticipate a rebound in sales activity as interest rates begin increasing again after summer arrives.

As more properties enter the market, sellers need to be wary of price fluctuations caused by needs-based and opportunistic buyers, leading to some volatility in pricing. Sellers at the top end of the market, where supply is more limited, will need to be pragmatic when setting their pricing strategy in order to achieve sales within months.

If you’re thinking of purchasing a property in Scotland, use our mortgage calculator to estimate what you could afford before consulting a solicitor and speaking to lenders about property valuation. Your mortgage lender may include this service in their mortgage offer or arrange it separately at an additional fee.