Alan Penman of Walker Fraser Steele, part of LSL Property Services, comments: “Scottish house prices have dipped slightly in the last two months. But compared to the beginning of the year, the outlook is distinctly sunnier. The average house is worth almost £2,300 more than in January. Prices haven’t increased as quickly north of the border, but the increases in England are being driven mostly by London.
“Sales are improving, and mortgages are more readily available. But there is still a long way to go. First-time buyer numbers are less than half of what they were before the 2008 downturn, and banks are still reluctant to lend en masse to high LTV borrowers. The finances of many borrowers simply don’t hold up to the strain of saving for a large deposit. Inflation remains high. Wage growth remains weak. Many borrowers require additional help to put enough money away for a deposit.
“When demand slows, house prices follow. Demand has been dampened by inaccessible mortgage criteria. But there are some hotspots, which have seen house prices rise, against the general trend. These areas are mortgage micro-climates, with job opportunities and better wages sustaining individual growth in their region. AberdeenCity is one such success story. Prices in Aberdeen rose 5% in the last month, to a record high of £194,202. Glasgow and Edinburgh too, have seen price surges.
“Increased first-time buyers will transform the future market. In the first quarter of 2013, loans to first-time buyers were 10% higher than this time last year. At the moment, this improvement is focused in the cities, where the majority of first-time buyers are based. As government schemes like Help to Buy and Funding for Lending continue to encourage new first-time buyers to the market by supporting their efforts to secure finance, this should grow in impact. High demand for Scottish rental property will continue to feed demand for property too.”
Dr Peter Williams, housing market specialist and Chairman of Acadametrics, comments:
The LSL/Acadametrics HPI shows a small decrease of £96, or 0.1%, in the average price paid for a house in Scotland in May, compared to April on a seasonally adjusted basis. This is the second month in succession that there has been a minor fall in house prices, but overall this year prices are up by £2,283, or 1.6%, from December 2012.
Figure 1 below shows the average house price in Scotland for the period May 2012 to May 2013, again on a seasonally adjusted basis, together with a trend line over the twelve months. We see that the year can be split into three distinct periods. The first is one of a relatively small but almost constant decline in prices from May 2012 to the end of the year, with falls ranging between -0.1% and -1.0% per month. The second, from January 2013 to March 2013, shows an upturn in prices of 1.8% over this three month period. Finally we have two months of almost static prices, with the average house price falling by £250 over the period. Prices in May 2013 are above the trend line, illustrating the gains that have been made since the start of this year.
On an annual basis, as indicated by the trend line above, house prices continue to decline, with the annual rate showing a fall of -1.3% over the year. We anticipate a small rise in prices over the coming summer months, as most estate agents are reporting an increase in demand for properties. This reflects a slight easing in the difficulties that buyers have been experiencing in obtaining mortgage finance.
In England & Wales all Regions reported a fall in the average annual rate of house price change between April and May 2013. The positive change in the annual rate in Scotland goes against this trend, albeit by the smallest of amounts at +0.1%. Despite the fall in house prices across the regions of England & Wales, there does appear to be generally more optimism. The main house price indices are now all pointing towards continued house price inflation, and a slow but steady improvement in the housing markets across the UK. This mimics the generally more confident views of the economy that have emerged in recent months. Mortgage lending has been boosted by a range of government initiatives, and we are finally seeing house builders moving to increase output. We anticipate that this optimism will also manifest itself north of the border, and foresee buoyant statistics for the Scotland housing market in August of this year. This is when the price falls of August 2012 will drop out of the annual calculations.
In Scotland over the year, and based on a three month average, semi-detached properties and flats declined in price by 1%, while terraced property prices have remained constant; in the same period, detached properties have seen prices rise by 1%. These price changes are at the national level. At the more local level we see far greater movement in individual prices. Looking at detached properties, the highest price rises have been in Angus, up 19.5% over the year. For semi-detached properties both Angus and DundeeCity have seen prices rise by a significant 16% and 10%, although the largest increase was recorded in Clackmannanshire at 19%. For terraces the highest price rises have been in AberdeenCity, up 11%, while for flats the largest increase was in East Dunbartonshire, up 16%.
Last month we discussed peak average house prices and stated that AberdeenCity was close to breaking its previous record level. We can indeed advise that this month AberdeenCity has surpassed its previous house price peak of £186,917, recorded in December 2012. The current average price is now £194,202, up 5% on the month; this is the only Local Authority Area in Scotland to have set a new peak price over the last year. Apart from Aberdeen City, the area closest to its peak price is Angus, where currently prices are £2,850, or 2%, from the peak of £143,478 established in June 2008.
The graph above shows the number of monthly transactions recorded by the Registers of Scotland (RoS) for the period January 2007 to May 2013, without seasonal adjustment. There is a bias towards the summer months in the purchase of homes, with May typically seeing an increase in sales of 13% over April levels. This year there has been an increase of 5% in sales volumes over April, which is lower than we would normally expect. However, sales in April were more buoyant than usual, which has resulted in a lower percentage increase in sales in May. For the period from January to the end of May 2013, transaction levels are running 4.4% ahead of the same five months in 2012.
Approximately half the rise in sales to date in 2013 compared to 2012 is the result of an increase in activity by first time buyers. The CML reports that “In the first quarter of 2013, a total of 4,500 loans were advanced to first-time buyers in Scotland. This represented a 10% increase on the first quarter of 2012 when there were 4,100 loans”. There has also been a pick-up in activity by buy-to-let landlords, with rentals in most areas of Scotland remaining strong.
Given the increase in activity by first time buyers, it is perhaps not surprising that the property type with the highest increase in transactions in the first five months of 2013 compared to the same period in 2012 is terraces, up 10%. In quantum terms, the largest increase in terraces over this period was seen in Glasgow, up by 44 properties, or 12%, compared to the same period in 2012. In percentage terms the highest increase in the number of terraced properties sold was in Perth & Kinross, up 38%, or 38 properties, followed by Dundee city, up 30%, or 39 properties.
The second largest increase in 2013 by property type, compared to the same period in 2012, was detached houses, up by 7%, or 270 properties. Here the largest quantum increase in detached sales was seen in Aberdeenshire, up by 91 properties, followed by the Highlands up by an extra 63 sales on 2012 levels, an 18% increase.
As with house prices, property sales have increased in the first five months of 2013 in the majority of Local Authority areas, compared to the same period a year earlier, with 25 of the 32 authority areas witnessing rises in transaction levels. The largest percentage increase was in Midlothian where transactions have increased by 48% over 2012 – this was across all property types, but especially detached houses, which have seen a doubling in the number of properties sold. Midlothian is followed by East Dunbartonshire, up 19% in sales volumes, with the largest increases taking place in the sale of detached homes. The area with the highest increase in the sale of flats is Edinburgh, with an additional 228 units being sold compared to the previous year. This increase in the sale of flats in Edinburgh represents 60% of the additional 390 flats sold in Scotland in the first five months of 2013, compared to a year earlier.