Defying Gravity: Market Resilience

Cameron Ewer, head of Savills residential in Scotland, said: “The Scottish prime market has been adjusting to wider economic challenges and defying gravity this year, with strong premiums achieved in mainstream markets and some record prices for ‘best in class’ properties.

“The first Labour budget in 14 years was bound to raise questions about market impact, but with no changes to income tax, VAT, or employee-paid National Insurance, there was little to dampen the appetite of new buyers.

“Sensible, realistic pricing will continue to be required to keep the market moving and generate competition. This will remain the case until any future interest rate cuts are implemented.”

Mr Ewer added: “Currently, there are two and a half times the number of new buyers for each available property in Scotland compared to pre-pandemic levels.

“While increased Capital Gains Tax on the sale of shares may prompt buyers to explore other sources for home deposits, the VAT on school fees may be the most impactful change. This is likely to reduce purchasing power for some families and increase demand in the catchment areas of good local schools, which could push house prices upward.

“Recent reports suggest that migration from south of the border to Scotland is at an all-time high, driven by comparative good value here, enabling families to commit to paying for private schooling and university fees here.”

The move to increase the additional dwelling supplement (ADS) in England and Northern Ireland to 5% brings it closer to Scotland’s figure of 6%. This supplement has long been factored into the Scottish market, with holiday homes and investment opportunities continuing to be in high demand from buyers both within Scotland and further afield.

Q3 2024 Prime Market Analysis

Savills’ analysis of the Scottish prime residential market for Q3 2024 highlights an upturn in sales activity despite price pressures from high levels of available stock.

Faisal Choudhry, head of residential research at Savills Scotland, said: “Scottish residential sales showed a positive trend in the third quarter of 2024. With mortgage rates easing, net agreed sales across all price bands increased by 17% from July to September 2024 compared to the same period in 2023.

The equity-driven prime market above £500,000 outperformed with a 30% increase.”

Impact of the Budget on Scotland’s prime Market: Savills Analysis

However, a 47% year-on-year rise in the number of prime properties with a reduced asking price has been a key factor behind sales activity. Additionally, a 23% uptick in sales falling through during Q3 2024 indicates market sensitivity. Supply continues to outweigh demand, with larger homes spending more time on the market compared to last year.

Mr Choudhry noted: “There are signs of stabilisation in some urban and commutable country locations. Prime sales activity picked up post-summer. With the prospect of an increased tax burden now removed, and an underlying demand for well-presented and realistically priced properties, future transactional and price growth is anticipated.”

Prime Prices and Stock Levels

The Savills index reveals that prime Scotland prices increased slightly by 0.3% in the three months to September 2024, following a -0.4% drop in the previous quarter. Prices are now -0.5% lower than a year ago but 15.5% higher than pre-pandemic levels in March 2020.

In comparison, prime UK regional prices fell by -0.5% in Q3 2024 and are -1.7% behind Q3 2023. While prime prices in some of Scotland’s city areas are under pressure, sought-after towns and villages saw prices rise by 0.8% in the last three months.

Scotland’s rarefied £2 million-plus country house market was one of the UK’s strongest performers, with prices increasing by 1.5% in Q3 2024. Despite prices being 21.4% higher than pre-pandemic levels, they are still -31.7% lower than their 2007/08 peak, offering value for new buyers.

City Dynamics: Edinburgh and Glasgow

Scotland’s prime market exhibited varying price performances in its two main cities. In Edinburgh, prime sales in the last three months outpaced those of the previous year. However, concerns about a potential increased tax burden ahead of the UK Budget impacted the upper end of the market. Increased prime stock compared to last year has led to more sales at prices below Home Report values.

Realistic valuations supported swifter sales, but properties needing modernisation linger unless priced appropriately. Prime Edinburgh City prices fell by -0.4% in Q3 2024, yet remain nearly 10% above pre-pandemic levels.

In Glasgow, prime prices rose by 0.3% in Q3 2024, with annual growth reaching 1.2%. Limited family home supply, especially in the West End, has supported prices. Aberdeen’s market stabilised with increased sales up to £750,000, but a more subdued market above this level.

Demand for High-Quality Country and Coastal Properties

Prime sales above £500,000 in country areas surrounding Edinburgh were higher in Q3 2024 compared to a year ago, particularly in the Lothians and Fife. Demand for best-in-class, realistically priced properties has improved, with prime prices increasing by 0.8% in the last three months.

Perthshire saw relatively lower prime sales growth, with buyers favouring energy-efficient homes. High build costs have capped new build prices, leading to a -0.9% decline in Q3 2024. The prime market in Angus and southern Kincardineshire remained stable with no change in values over the last three months. In the west of Scotland, ongoing demand for high-quality coastal and country properties up to £1 million led to a 0.3% increase in prime prices around Glasgow.

Future Outlook: Transactional Growth

Looking ahead, underlying demand for well-presented homes remains strong, with a 5% annual increase in prime buyers registering with Savills during Q3 2024. The lead-up to the Budget overshadowed sentiment in prime markets across the UK, with concerns about greater tax exposure.

Sentiment is expected to improve further, particularly among mortgaged buyers benefiting from a better lending environment. However, the narrowing gap between buyers and sellers regarding price expectations will be crucial to maintaining market activity.

The removal of VAT exemption from private schools in January may spur growth in areas with high-performing state-funded schools. Otherwise, high levels of available prime Scotland stock means appropriate pricing is essential to maintain sales activity.