Scottish house price growth projection doubled to 3% and here’s why

Average Scottish house prices are set to grow by 3 per cent this year, double the rate previously forecast, amid a “greater sense of stability in the market”.

Rettie, the Edinburgh-headquartered property firm, said its research unit had upped its central forecast following the recent reduction in the UK base interest rate, with further falls in borrowing costs predicted in the coming months as inflation comes under control. However, the same study also predicts an average house price increase of 3 per cent for 2025, down from a previous estimate of 4 per cent.

John Boyle, director of research and strategy at Rettie, said: “With the Bank of England deciding to keep interest rates at 5 per cent, following the quarter point reduction in August, there is a greater sense of stability in the market and market rate cuts are reducing costs for consumers. However, Scotland’s housing market performance is still best described as ‘tepid’, a lukewarm showing as the market continues to adjust to higher interest and mortgage rates that kicked in during autumn 2022.”

A property on Raeburn Place, Stockbridge, Edinburgh, marketed by Rettie, which has released its latest house price research.

While mortgage rates are now falling, they are expected to remain above historic levels for some time, meaning the market will still face a headwind, according to the latest research. As the wider economy improves more than many anticipated in 2024, forecasts from the central bank indicate that the rate of economic growth may slow again next year.

Boyle added: “In subsequent years, we think that growth will move back closer to a longer term trend of around a 4 per cent annual increase if the economy recovers as anticipated.”

The level of residential property transactions was around 93,000 in 2023, with Rettie forecasting a modest increase this year and a gradual movement towards a longer term trend of around 100,000 sales per year as the economic recovery becomes more entrenched. However, this will be far from the market peak in 2007, when Scotland achieved in excess of 150,000 house sales.

Meanwhile, in the Scottish rental market, the number of new listings continues to fall, according to the report, highlighting a demand/supply imbalance. While rent rises are cooling in Scotland’s main cities in 2024, this is on the back of substantial double-digit rises stemming from when the rent freeze was first announced two years ago.

Tara, Albert Drive, Pollokshields, Glasgow.

Rettie said it had concerns that the proposals by the Scottish Government to deal with rent pressures contained in the Housing Bill that is currently making its way through the Scottish Parliament - which would see a rent control regime managed by local authorities - could have the unintended consequence of further squeezing supply and adding to Scotland’s housing crisis.

The study notes: “It seems clear from the current evidence that rental availability has now dropped back drastically. As demand is on the rise, this has led to rent pressures. The Scottish

Government’s proposal to deal with this issue is to bring in a strict rent control regime (to be managed by local authorities). This proposal is contained in the new Housing Bill that is now working its way through Parliament.

“The government doesn’t seem to recognise that this will, in all likelihood, have the unintended consequence of further squeezing supply and leaving many tenants unable to find a property to rent.”

The firm said some of the private build-to-rent (BTR) schemes that were in the pipeline have now been replaced by purpose built student accommodation (PBSA). It argued that this was another “unintended consequence” that has led to the further removal of rental and affordable housing from the supply pipeline.

Boyle said: “The Scottish housing market has sailed along at a pretty steady pace over the first part of 2024. There has been little change in the key market metrics, which is a reasonably good outcome considering the headwinds of higher interest rates and a fairly anaemic economy since 2022.

“The exception is the new build sales market, which has continued to come under pressure due to the additional supply-side pressures it is facing. The rental market remains relatively buoyant in terms of demand but there are concerns about the direction of Government legislation.”

The new research was published as it emerged that September had seen the fastest annual house price growth in around two years. UK house prices increased by 0.7 per cent in September, according to the latest index from the Nationwide Building Society.

This resulted in the annual price growth rate accelerating from 2.4 per cent in August to 3.2 per cent in September, the fastest pace since November 2022 when there was a 4.4 per cent rise. The average UK house price in September was £266,094.

Robert Gardner, Nationwide’s chief economist, said: “Income growth has continued to outstrip house price growth in recent months while borrowing costs have edged lower amid expectations that the Bank of England will continue to lower interest rates in the coming quarters. These trends have helped to improve affordability for prospective buyers and underpinned a modest increase in activity and house prices, though both remain subdued by historic standards.

“Scotland saw a noticeable acceleration in annual growth to 4.3 per cent (from 1.4 per cent in the second quarter),” he added.

Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown, noted: “Buyers were back with a bang, prompting a September surge. This time of year is always fairly busy, but falling mortgage rates and wages outstripping inflation have prompted a burst of enthusiasm.”

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