The overall residential market in Scotland has shown continued growth, with an 8% annual increase in the number of residential transactions during the year ending in the first quarter of 2016.
The market was supported by an increase in cash buyers and buy to let purchasers, boosted by increased levels of equity generated from core hotspots, particularly among older buyers, according to the latest analysis report from Savills.
It also says that various Help to Buy schemes and the gently improving economy, leading to increased consumer confidence, are also combining to support the market.
Market growth is continuing to spread out to locations that were lagging following the housing market downturn. These include West Lothian, East Ayrshire, North Lanarkshire and Glasgow City, where the annual growth in transactions was higher than the figure for Scotland as a whole.
The report says that this is mainly due to an increase in house building, coupled with attainable house prices and improving transport links. Annual transactional growth in traditional hotspots and commuter locations, such as Renfrewshire, East Lothian and Midlothian, as well as the market hub of Edinburgh, also exceeded the figure for Scotland as a whole.
Savills is forecasting annual growth of 3% in Scottish mainstream values by the end of 2016. ‘We expect values in city locations and core hotspots to outperform the figure for Scotland as a whole. Stricter lending conditions and a possible rise in mortgage rates could limit capacity for strong price growth and transactional growth. This is likely to keep exposure to risky mortgage debt under control,’ it explains.
In the prime market Scotland’s Land and Buildings Transaction Tax (LBTT) continues to have a significant impact following its introduction in April 2015. Over the last 12 months, the prime market above £400,000 witnessed an overall shortfall in activity, mainly due to higher rates of taxation.
However, since the end of 2015, the prime market has adjusted in the city hubs of Edinburgh and Glasgow. Furthermore, prime market strength is spreading from the hubs into traditional suburbs and commuter areas
The number of prime second hand sales at £400,000 and above in Scotland fell annually by 14% to 3,131 during the year ending in the first quarter of 2016 as the market continues to adjust to higher rates of taxation. Despite this drop, prime activity was 13% higher than the five-year annual average of 2,762 sales.
The prime market was led by the core city hotspots of Edinburgh and Glasgow. Prime activity in Stirlingshire and the Lothians region surrounding Edinburgh bucked the national trend, benefitting from relative affordability and improving transport links. Furthermore, demand for family homes in areas with top performing state schools remains buoyant.
According to Savills Prime Residential Index, overall values in Scotland remained unchanged, with a slight 0.4% year on year increase at the end of March 2016. Further examination of the Savills Index shows a widening gap between overall property values in city and town locations compared to village and rural areas.
For example, values in Edinburgh and Glasgow increased annually by 4.3% and 3.7% respectively. Values in town locations of Scotland increased by 1.9%. However, across Scotland, there was a fall in values in village of 0.5% and rural locations a fall of 2.2%.
Over the course of 2016, Savills expects that the overall prime market to continue to absorb the turbulence of taxation challenges, with values expected to rise by 2% by the end of this year.
The market at £1 million and above in Scotland is also adjusting to higher rates of taxation, with sales falling slightly to 164 compared to 188 during the previous 12 month period. Despite this drop, million pound sales were 10% higher than the five year annual average of 149 sales.
Unsurprisingly, the majority of million pound activity took place in Edinburgh, which accounted for 77 sales. This was followed by East Lothian, which has shown remarkable growth, accounting for 18 sales, which is the best performance in this area in over a decade.
There were 15 million pound sales in Aberdeen City compared to 19 in the previous 12 month period. The million pound market in Glasgow City continues its recovery, with eight recorded during the year ending in the first quarter of 2016.
The report adds that across all regions, the strongest markets continue to be in affluent urban locations, which have outperformed their rural and village counterparts. ‘While the additional tax on second homes and buy to let purchases introduced in April 2016 will lead to a slight lull in the short term, we expect the market to adjust by the end of this year,’ it concludes.