This is a collaborative post.
The UK has seen an exceptional rise in house price growth across the board in the last 18 months with an annual increase of 13.2% to June 2021. Growth remained high in the last quarter of 2021 also, with an annual rise of 10.8% in December 2021.
The reason for this increase in house prices is primarily that the demand for property is outstripping supply. However, the availability of mortgages at favourable rates and government incentives such as the temporary increase to tax thresholds for those buying land or property have also played their part. In England and Northern Ireland this property tax break was referred to as the stamp duty holiday, in Wales the Land Transaction Tax (LTT) holiday and in Scotland the Land and Buildings Transaction Tax (or LLBT) holiday. This meant that in Scotland, properties of £250,000 or under were exempt from the LLBT tax from July 2020 to March 2021. The usual LLBT tax thresholds are £145,000 for residential properties and £150,000 for non-residential land and properties.
Scotland, much like the rest of the UK, has experienced an unprecedented house price growth since the start of the Covid-19 pandemic including an impressive 16.9% year on year growth in August 2021. The county of Clackmannanshire in central Scotland also saw the second highest house price grown of any UK local authority at an impressive 18.3% to November 2021 (second only to Merthyr Tydfill (21.2%) and joint with Blaenau Gwent (18.3%), which are both in Wales).
While less pronounced towards the end of 2021 and in the first quarter of 2022, Scottish house price growth has remained steady, with an 11.2% increase in house prices overall from December 2020 – December 2021. This is quite a significant rise when compared to house price growth in London (5.5%), which retained its position as the UK region with the lowest annual growth throughout 2021 and saw areas such as Southwark and nearby Watford actually decrease in price.
Property experts Rightmove also anticipate that Scotland will be one of the UK regions with the biggest price growth in 2022 with a rate of around 7% or more. The West Midlands, the South West and Yorkshire and the Humber are also expected to see higher levels of house price growth as former urbanites shun the more populous towns and cities in favour of more outdoor space, countryside on the doorstep and better bang for their buck now that so many of us are no longer tethered to an office desk and have greater flexibility about where and how we live.
Indeed, interest in well-connected, coastal areas such as affordable Montrose in Central Scotland and perennial (if more pricey) favourite North Berwick in East Lothian remains high, with the historic, picturesque city of Stirling also named in the top ten happiest places to live in the UK.
And with an average house price of £180,000 in December 2021 versus £275,000 for the UK overall and £293,000 south of the border in England, Scotland certainly offers an affordable proposition for potential homebuyers.
As for the rest of 2022 and beyond, Scotland, like the rest of the UK, is facing a significant cost of living crisis precipitated by the recent worldwide price hikes for oil and gas and the Russian invasion of Ukraine. With soaring energy bills, increased shipping costs and disruption to supply chains the resultant high inflation will no doubt have an impact on house prices.
As the UK faces it’s highest rises in inflation for 30 years, interest rates have risen twice since October 2021 and there is speculation that they could rise again from the current rate of 0.5% as the Bank of England tries to reach its preferred level of 2% inflation. For anyone with significant savings this may be a positive step, but higher interest rates will not be welcome news for the 11 million plus mortgage owners in the UK, particularly those who are not privy to a fixed rate mortgage.
Given the current state of the economy and rising living costs, the removal of key initiatives such as the LLBT holiday and the furlough scheme plus ongoing worries about the Covid-19 pandemic, the impact of the Omicron variant and the potential for new strains of the virus, it is hardly surprising that potential homebuyers are beginning to feel more wary about purchasing a new property. With future national insurance and corporation tax rises also on the way in 2022 and 2023 we are likely to see the constraint of affordability coming to bear on house prices even though in the short term, the supply-demand imbalance is still driving growth in Scotland and beyond.