Financial markets crisis: Property market ‘cooling’, but experts predict no major price falls in Scotland

Mortgage specialists have said Scotland’s property market is already starting to “cool down”, but forecast they do not expect a major fall in prices in the wake of the economic turmoil sparked by Chancellor Kwasi Kwarteng’s controversial mini-budget.

Independent advisors and brokers said houses were starting to sell for closer to their home report value, although some suggested the prices of new build properties, which have surged in recent years, would probably be subject to a sharper decline.

While some experts said the cooling market represented good news for first-time buyers who have been priced out, others anticipated significant activity from buy-to-let investors looking to enter the market for the first time.

Despite calls for the Scottish Government to “level the playing field” following Mr Kwarteng’s decision to cut stamp duty for all homebuyers in England and Northern Ireland, those with decades of experience in the mortgage industry said they did not anticipate any significant changes to Land and Building Transaction Tax (LBTT) rates in Scotland.

With some economists predicting the Bank of England will raise interest rates as high as 5.8 per cent by next spring, and a slew of lenders pulling mortgage deals amid continuing uncertainty in the financial markets, there are growing concerns about the impact on homeowners with mortgages, as well as those hoping to enter the property market.

The prospect of interest rates reaching a level not seen since before the 2008 financial crisis has also led some analysts to predict a fall in house prices across the UK of anywhere between 10 and 15 per cent next year.

Such a trend would go far to cancel out recent rises. According to figures compiled by the Office for National Statistics, average UK house prices increased by 15.5 per cent over the 12 months to July.

However, the rate at which they rose in Scotland was a more modest 9.9 per cent, down from an annual spike of 11.4 per cent the previous month, and there is optimism any fall in prices here will not be as severe.

Graeme Nichols, managing director of West End Mortgages.

Graeme Nichols, managing director of West End Mortgages, a mortgage and protection specialist based in Glasgow, told Scotland on Sunday: “We’re seeing the property market slowing down, with the ‘for sale’ signs staying up longer in most areas. Before, properties would be going under offer in two to three days. Now, it’s two to three weeks.

“People are also starting to get offers accepted that are closer to home report values, which is good for a lot of first-time buyers.”

He said he did not expect that trend to alter significantly, and suggested the predictions of sharp falls in UK-wide house prices that have been made in recent days would not necessarily have an impact in Scotland.

Housing market experts say properties are remaining up for sale longer as the market cools. Picture: Jeff J Mitchell/Getty

“I think there will be more of a slowdown in prices and that properties will be selling for a more realistic and fair figure,” he said. “There will be less people in the market and, with the rent freezes that have been introduced recently, it’ll be interesting to see whether more landlords put properties on to the market in response.

“These things could help dampen down the market over time, and I believe, and hope, what we’ll see is properties being sold for closer to their actual value.”

Paul McCaughey, founder of Merchant City Mortgages, an independent mortgage advisory firm that counts buy-to-let investors among its client base, said he too did not anticipate any major downturn in the Scottish housing market.

He said he had spent the majority of the week trying to “allay people’s fears”, adding: “I think the Scottish market is more robust in the sense that with the exceptions of areas like Aberdeen, the west end of Glasgow, and some of the leafier suburbs of Edinburgh, we don’t get the same peaks and troughs.

“There’s also people who are itching to get into the buy-to-let market for the first time, and I think that those investors will temporarily prop the market up. I don’t see the big falls happening.”

One area that could be hit by any price falls is the new build market, where there has been an annual increase of 20 per cent, far outstripping the increases seen with existing properties.

“I think new build prices will have to come back into line, because they’re out of kilter anyway,” Mr McCaughey reasoned.

Richard Donnell, director of research and insight at Zoopla, said he was already seeing some sellers adjusting prices downwards to meet the expectations of more “price sensitive” buyers.

He sad: “We’ve seen 6 per cent of homes reduce their asking price by 5 per cent or more so far this month, the highest since before the pandemic.”

Mr Donnell said the outlook for house prices and market activity “all depends” on where mortgage rates move in coming weeks.

“If markets cool down and mortgage rates move towards 4 per cent, then we expect house price growth will continue to slow over the winter and into 2023.”

Despite the challenges, there is no great expectation the Scottish Government will make major changes around LBTT.

Mr Nichols said he expected “tweaks” to rates, but that they would be “minimal,” and ruled out the idea of Government intervention to help people with repayments in the face of rising interest rates.

“That has never been done before, and I don’t know what can be done by governments to help people with mortgages,” he said.

“Unfortunately, a lot of people are going to struggle with interest rates going up. For the majority of people buying in recent years, low interest rates are all they have ever known.

“But a lot of people will have no choice now but to look at what they spend their money on and make savings.”