A STARK WARNING ON SCOTTISH HOUSE PRICES

If Scotland’s “squeezed middle” is looking for a catch-up rise in house prices, says Scot-Buzz editor Bill Jamieson, don’t count on it. And if you’re hoping for a buyer surge after independence, be ready for disappointment.

Far from narrowing, the gulf in house price behaviour between Scotland and the South-East is set to increase over the next five years.

These were the key warnings in a scarcely-reported Scottish Property Outlook conference held by estate agency Savills in Edinburgh last week.

This omerta in the Scottish media was even more surprising, given that this event was attended by more than 400 property professionals, developers and agents, the highest attendance in the history of this event and required an overspill room to fit in all the attendees.

The annual seminar covers data and analysis on the prime and mainstream housing markets, the rural property market, residential development and not least trends in the farmland. It has become the ‘go to’ property event of the year for the sector in Scotland. 

This year attendees were warned that Scotland’s property market – both mainstream and prime – is forecast to continue underperforming the rest of the UK, not just for this year but for the next five years.

Now this is striking, because on previous occasions when the rest of the UK – particularly London – barnstorms ahead, there is a subsequent period of catch-up in Scotland – the prime areas of Glasgow, Edinburgh and Aberdeen particularly.

Not so this time, it seems. The “best” we can apparently hope for is that in the event of a ‘No’ vote on September 18, there will be a ‘relief’ catch-up as a major uncertainty over the market is removed.

Across the UK, house prices as measured by the Nationwide, are up by 15.2 per cent since March 2009. This figure has been driven higher by London, where prices are up by 41 per cent over the same period. The comparable figure for Scotland is 2.6 per cent.

In the prime market (houses valued at £400,000 and over) London prices have risen by 30.6 per cent since the peak in 2007. The rest of the south of England has recorded a fall of 12.9 per cent. In the Midlands and the north of England, average prices are down by 16.9 per cent from the peak. In Scotland prices are down by 23 per cent.

What of the future?

For the mainstream market over the next five years (2014-2018) Savills is forecasting gains of 31.9 per cent in the south-east of England, 30.7 per cent in the east of England, 24.4 per cent in London – and 19.3 per cent in Scotland. In other words, the gap grows wider – not just between Scotland and London but between most other areas of the UK.

For the prime market it is forecasting rises of 23 per cent both for London area and across the English regions. For Scotland it is forecasting 18 per cent.

Separate from these forecasts presented by the firm’s executives, an electronic keypad poll of attendees showed that 60 per cent of the audience believed that house prices in Scotland would rise by less than the rest of the UK.

Critical to prospects for the top end of Scotland’s housing market are buyers outwith Scotland. These accounted for 34 per cent of all £1 million plus transactions last year and more than 40 per cent of such transactions in Edinburgh. More than three quarters of the audience (77 per cent) said they believed these buyers would decrease in the event of independence.

All this, of course, is open to the criticism that few in Scotland are ever likely to be clients of Savills and most care even less. ”Posh in Perth” is a world apart from the one in which most of us live. But this prime market segment reaches into Bearsden, Newton Mearns, Comely Bank, Morningside, south Aberdeen and across the Borders and the Highlands, not just Perthshire.  Many aspire to live in these areas.  And a healthy housing market requires fluidity and movement both within and across all price boundaries.

This prime market also provides direct and indirect employment for thousands through renovation, extensions, repairs, furnishings and ancillary services. If the perception gains ground that prices in Scotland will not keep pace with the UK, this may work to deter professionals from moving here.

Scotland’s housing market overall plays an important role in the Scottish economy with around 84,000 private properties changing hands last year, amounting to over £13 billion worth of transactions and yielding more than £200 million in Stamp Duty. But it scarcely featured in the Scottish Government’s White Paper on Independence. 

There is a second objection, altogether more compelling. It is that comparisons between Scotland and London have now become so grotesque as to be meaningless.

This I certainly agree with. It is not Scotland but London that is becoming more detached from the UK. It is a global megapolis with all the different dynamics that go with this. And in recent years its appeal as a global city has significantly strengthened. Comparing “Scotland” with “London” is truly to compare apples and pears.

A particularly arresting slide in the presentation by Savills’ Jamie Macnab dramatically illustrated this. It featured recent individual house transactions in Belgravia (£13 million), Holland Park (£17 million) and Knightsbridge (£18 million) - followed by one of a Scottish country estate with grand mansion, gardens and shooting rights going for £2.5 million.

You could buy seven of those for a house in Knightsbridge, or more than 20 houses in most parts of Scotland for the average price of a London West End property.

Even by the frequent excesses of the London market, this is absurdity – but a telling reminder of the gulf that now separates the centre of the UK’s capital city from the rest.

Arguably of more important concern is the potential effect of the independence referendum on Scotland’s housing market. Around 65% of residential transactions in Scotland every year are dependent on a mortgage, and lending rates applied in Scotland would therefore have the biggest impact on the market post independence.

According to Faisal Choudry, head of Savi0lls Research, the question mark over whether Scotland will remain part of the UK after the referendum has the potential to impact on the residential property market.

While the number of applicants who registered with Savills to buy north of the Border doubled in 2013, the firms warns of  gathering anecdotal evidence that uncertainty is becoming a concern to some buyers and sellers.  They say the flow of buyers from London and the South, an essential element of Scotland’s recovering property market, could be in jeopardy in an Independent Scotland.

Said Faisal Choudhry, “England’s prime market is improving at a much faster rate than in Scotland, and Scottish sellers are benefiting from wealth rippling north of the border.  However, we believe this positive facet of our market could be hampered in an independent Scotland.”

“The prime-market is the life-blood of the Scottish residential sector in this recovering market, and we know that English buyers moving north are vital to that market… lack of certainty has potential to discourage buyers.  Despite the importance of the residential property market to the Scottish economy, there remains a lack of information from pro-independence campaigners about the fundamental issues.”

For these reasons and more, the Savills analysis merited more discussion and coverage than it got. Scot-Buzz today makes a small step to rectify this.