The property market in Scotland has always operated in a different way and to a different pace to that in the rest of the UK. However, for a number of reasons the Scottish property market is likely to diverge even further away from that in England in the future. So in this Property Insider report we will look at the current property market in Scotland and prospects for the future for investors interested in investing in Scottish property.
Issues to consider when investing in Scottish property
There are a number of issues those considering investing in the Scottish market must consider, which differ from those which must be considered when investing in the wider UK market. Firstly the issue of Scottish independence: Despite being rejected in the September 2014 referendum the issue has clearly not been settled. And secondly, the issue of the UK’s membership of the EU. In the longer term a combination of these issues could see Scotland remaining in the EU, leaving, or even leaving and rejoining perhaps under different terms.
Regardless of what happens eventually most experts agree that uncertainty of this kind is likely to exert a negative influence on buyer and investor sentiment, and on the overall property market.
Regardless of the independence issue, devolution is continuing apace. The Scottish Government has already revised the Stamp Duty system into a new system of Land and Buildings Transaction Tax, plans to amend the Council Tax system and, from April 2016, has renewed powers to regulate income tax rates (and receive some of the revenue from Income Tax). All of these have potential to affect the demand for property to buy, and to rent.
The economy is another issue investors must bear in mind, and particularly the economy’s dependence on oil – something which the recent heavy fall in world oil prices has underlined. For example, the property market in Aberdeen, one of Scotland’s most buoyant, is almost totally reliant on the fortunes of oil.
Buying in the Scottish property market
Looking more closely at the property market, the Scottish market is incredibly diverse for a market of just 5.2 million people, making it impossible to apply a ‘one size fits all approach’ when investing.
Scotland has something of a tri-speed property market as follows: The market in Edinburgh, Aberdeen and the more prosperous parts of Glasgow is characterised by high demand, short supply and briskly appreciating property prices. The rest of Glasgow and the towns of the central belt have a market characterised by more balanced supply and demand, and more modest price appreciation. Rural areas, including the Highland and Islands, have limited supply but also limited demand and in some places there may not be much of a market from which to draw conclusions at all.
Those considering investing in Scotland, especially those from outside the country, should bear in mind that the buying and purchase process is unique and significantly different to that elsewhere in the UK. In particular the ‘offers over’ pricing convention, which is still common if no longer universal, where properties are initially priced at significantly under the buyer’s price expectation in order to encourage competitive bidding from prospective buyers. In other words, asking prices are not a reliable guide to selling prices. This underlines the importance, when buying, of studying your market carefully and taking appropriate expert advice on the respective local market.
Other key differences to be aware of include: The process of inviting sealed bids by a specified closing date (usually where several buyers are interested in the property). The legal and procedural differences in the conveyancing system which mean that a binding contract is formed at a much earlier stage in the process than is usual in England.
Buy to let investors interested in buying in Scotland should note that landlord and tenant law differs greatly from that in England and Wales and, generally, is more regulated. Significant differences to bear in mind include the requirement for landlord registration, tenancy information packs, and repairing standards. Investors unfamiliar with these differences, especially those from outside Scotland, should take professional advice.
Property prices in Scotland
Now let us look at prices and price trends. The average property prices in Scotland is generally significantly below that in England and Wales, but it is a figure that can be deceptive.
Official figures show that the average property price in Scotland in 2015 was £167,734, while in England and Wales the figure is currently £191,812. However, these figures mask considerable variation across Scotland. Average property prices in Edinburgh in 2015 were £233,255 (Edinburgh itself has some of the UKs most affluent postcode districts) and Aberdeenshire £231,704 – pricing comparable to the south east of England (excluding London). Prices elsewhere in Scotland are significantly cheaper but still ahead of those in the English regions. For example, the average property price in Glasgow at £140,837 could be compared with the average price in Manchester at £103,834 or Birmingham at £124,127.
Historically property price trends mirror yet lag those in the rest of the UK – rising more slowly in a boom and tailing off more quickly in a slump. For example, the annual growth rate in the ONS House Price Index (HPI) for Scotland decreased from 1.1% in Q2 2015 to 0% in Q3 2015 but for the UK it remained at 5.6%.
Several commentators report that the introduction of Land & Buildings Transaction Tax in 2015 caused a fall in average property prices, which should perhaps be borne in mind when considering these figures.
Rents and the rental market in Scotland
Now let us look at the rental market. The private rental sector has grown fast in Scotland over the last decade, and for the same underlying reasons as the rest of the UK – rising property prices and lack of mortgage finance have put buying out of the reach of a significant number of potential home owners leading to strong demand for rented accommodation.
As with prices, rents tend to be behind UK average levels although there is again considerable variation, with rent levels in Edinburgh, Glasgow and Aberdeen being for the most part significantly ahead of other parts of Scotland. Figures from Citylets quote average monthly rents in Scottish cities as follows: Edinburgh £951. Glasgow £701. Aberdeen £934. For comparison Zoopla quote average rents in English cities as follows: London £2,938. Manchester £1,132. Birmingham £639.
On rent trends. the latest Citylets Quarterly Report shows that average rents for Scotland have again fallen slightly and in 4Q 2015 were at £747 per month down from £757 in Q3 2015. Annual growth has also slowed from 2.9% last quarter to 2% as a downward trend in the Aberdeen rental market exerts the stronger pull on the national figures than Edinburgh’s continued rise.
Lastly, buy to let landlords intending to buy in Scotland should remember that the same fundamentals underpin the letting market in Scotland as in any other part of the UK: Location is all important when considering letting potential. Intending investors should look at local rental demand, together with supply. Calculate likely yields, but remember that higher priced areas often offer lower yields but better potential for price appreciation in future, while lower priced areas often offer better yields but lower prospects for price appreciation. Do your own research and take expert advice where needed.