Housing summary statistics issued – Place Design Scotland

AN estimated 10.4 per cent increase in construction costs – up to April last year – has been identified in a Scottish Government summary of the housing market.

The Q2 2023 summary – here – features not just construction costs, but sales, transactions, rents, interest rates and housing supply, among others.

Among the main findings:

While transactions stabilised after the volatility caused by the Covid-19 pandemic, there is now evidence that the level of transactions is falling in response to higher interest rates. Registers of Scotland statistics show that number of residential property transactions in Q1 2023 was down by 1.9 per cent compared to pre-pandemic average for Q1 (2016 – 2019), while Revenue Scotland data, which is more up-to-date, shows that over the period January to May 2023, Land and Buildings Transaction Tax returns were 9.4 per cent below the corresponding months in 2019;

Higher interest rates are also weighing on the previously-elevated level of house price inflation, with house price inflation falling from the recent peak of 13.3 per cent in Q3 2021 to two per cent in Q1 2023. [Source: UK House Price Index (HPI)];

The strongest annual price growth by property type in Q1 2023 was for detached properties, up by an annual 3.7 per cent, whilst flats increased by the lowest amount, up by 0.2 per cent;

The average new-build property price increased by an annual 11.8 per cent to £284K in Q4 2022, higher than the increase on the average existing build price of 4.6 per cent (note these figures are one quarter behind other HPI data);

Private housing rental prices for new lets (which are not subject to the Cost of Living (Tenant Protection) Act) continue to increase. In Q1 2023, letting agencies Citylets and Rightmove recorded annual private rental increases in Scotland of 12.4 per cent and 12.3 per cent, respectively;

Lending to both first-time buyers and home movers has fallen relative to pre- pandemic levels: over the four quarters to Q1 2023, new mortgage advances to first-time buyers in Scotland decreased by 8.7 per cent and to home movers by 8.9 per cent relative to the four quarters to 2020 Q1. [Source: UK Finance];

There has been a significant fall in mortgage approvals (a leading indicator of housing-market activity). Over the period October 2022 to May 2023, approvals in the UK have on average been 27 per cent lower than they were in the corresponding months of 2019, prior to the pandemic. [Source: Bank of England];

Lenders reduced the number of residential mortgage products over the month to 1 June from 5,264 to 4,967 (-5.6 per cent), the largest monthly fall since October 2022 following the mini-budget / UKG Plan for Growth. [Source: Moneyfacts Mortgage Treasury Report];

Measures relating to the private rented sector under the Cost of Living (Tenant Protection) Act have been extended to September 30 2023. In addition, Tenants’ Rights Minister Patrick Harvie has confirmed proposals to extend these measures until March 31 2024, at the latest, subject to parliamentary approval;

The Bank of England has increased the Base Rate 13 times since December 2021, taking the rate from 0.1 per cent to five per cent. This has fed into significant increases in mortgage rates, with the average advertised two-year and five-year fixed mortgage rates reaching 6.47 per cent and 6.01 per cent respectively at the beginning of July 2023 following the 50 basis point increase in the Bank Rate at the June Monetary Policy Committee meeting [Source: Moneyfacts];

Tighter conditions in the mortgage market are also reflected in the decreasing share of higher-risk lending. The share of mortgage advances in the UK with both a high LTV and a high income multiple fell by 1.2 per cent points from the previous quarter to stand at 3.4 per cent in Q1 2023. [Source: FCA]. This has also fed into average LTV ratios, with that for new mortgages advanced to first-time buyers in Scotland falling by 2.3 per cent points over a one-year period to 80.1 per cent in Q1 2023 and to home movers by 3.8 per cent points to 68.4 per cent. [Source: UK Finance];

The number of regulated mortgages entering arrears across the UK rose by an annual 63.1 per cent in Q1 2023, although from a low base: relative to the pre-pandemic level in Q1 2019, the number of regulated mortgages entering arrears fell by 3.1 per cent. [Source: UK Finance]. A new mortgage charter has been agreed with lenders to provide support to residential mortgage customers;

There were 23,512 all-sector new-build homes completed in the year ending Q1 2023, an annual increase of 8.8 per cent (1,897 homes). However, the number of new build homes started decreased by two per cent (305 homes), with 19,204 starts in the year to end March 2023, down from 19,509 starts in the previous year. [Source: SG];

A total of 10,458 affordable homes were delivered in the year to Q1 2023, an annual increase of 7.2 per cent. However, approvals and starts have decreased over the year to Q1 2023, in-part caused by increased costs in the construction;

Construction output price inflation for new public and private housing increased by 10.4 per cent annually to April 2022. [Source: ONS] One of the drivers of output price inflation has been large increases in the prices of construction materials used in new build, although the annual growth rate has moderated from 24.0 per cent in June 2022 to 7.6 per cent in April 2023. [Source: UK Government]; and

Following a dip due to the business support available during the pandemic, insolvencies of construction firms registered in Scotland have returned to pre- pandemic levels: there were 202 insolvencies in the year to Q1 2023, compared with 210 in the year to Q1 2020. [Source: The Insolvency Service].

Picture credit: Place Design Scotland

Comments are welcome – only courteous ones (as per our T&Cs) – but they can only be posted by signed-in members. To sign up, for as little as £12 a year, please go here. Please note, comments appear following moderation (so expect a delay when submitting).