The Daily Telegraph - Saturday - Money
Scotland ‘in a bubble that will burst’
Buyers are bidding way over the asking price as supply shortages bite. By Melissa Lawford
Agents have warned of a property bubble in Scotland as buyers pay 40pc over asking prices. In April it looked as if the market had turned after a period of high growth. Official data showed that house prices had fallen by 4pc in a month. Analysts attributed the dip to the end of the Land and Buildings Transaction Tax holiday on March 31.
This prompted worry about England’s market, where the stamp duty holiday was far more generous. In Scotland, buyers who could complete by the end of March could save at most £2,100. On July 1 the maximum saving in England fell by £12,500.
Yet Scottish house prices surged again in May, jumping by 5.9pc in a month to hit a record high of £171,000 on average. Annual growth in May was 12.1pc, two percentage points higher than the average UK growth rate of 10pc.
The resurgence has suggested that the return of full stamp duty rates in England is not likely to hit house prices. If anything, some fear the Scottish market has become overheated.
Agents have been quick to dismiss the role of the tax break. Ken McEwan of McEwan Fraser Legal, a solicitors and estate agency practice, said: “It had absolutely no impact at all.”
Ben Finnie of Thorntons estate agency in Dundee said: “The LBTT holiday wasn’t generous enough for people to notice it. There was no immediate change when it was introduced; we actually had to make people aware of it. Therefore when it ended it didn’t make a massive difference.”
The market has boomed even with the withdrawal of the incentive. Mr Finnie said: “Everything is just so unpredictable. We have had properties that go under offer in hours. Everything comes back to Covid. People want extra rooms, extra space and gardens.”
Cameron Ewer of Savills estate agency added: “The reason why people are buying is not financially driven. It is 100pc about lifestyle.”
The race for space has driven a wave of upsizing in Scotland. Buyers are moving to suburbs of cities and into rural areas to buy larger homes.
Excluding the Shetland and Orkney islands, where extremely low turnover skews the statistics, the biggest increase in transactions was in Aberdeenshire, where sales in the first six months of the year jumped by 77pc compared with the same period in 2019, according to Savills’ analysis of figures from TwentyCi, a data firm. The rural district extends from the Cairngorms National Park to the beaches of the north- east coast of Scotland.
Aberdeen, Dundee, Angus and the Scottish Borders recorded respective rises of 59pc, 46pc, 28pc and 30pc. In Edinburgh and Glasgow sales rose by 14pc and 11pc.
The post- lockdown shift to home working has also brought relocators from farther afield, along with second home buyers. In the west of Scotland 60pc of Savills’ deals so far this year were to buyers from outside Scotland, primarily England, said Mr Ewer. Before the pandemic the share was 40pc.
For the most expensive homes, buyers were paying 10pc over the Home Report price, the amount the property is valued at by surveyors and the maximum that banks will lend to. For country property, buyers who offer 20pc to 30pc over this price have been common, according to Mr Ewer.
“And if you have a waterside holiday cottage you’re looking at 35pc over.” These kinds of offer must be made up with cash, as mortgage lenders will not cover the difference.
Overall, agreed sales in the first half of the year were 12pc above 2019 levels, according to Savills. Yet technically this means that, in terms of transaction volumes, Scotland is underperforming.
Across Britain agreed sales were up by 36pc over the same period.
Agents blame a shortage of supply. “We’re down by 25pc on available stock versus 2019,” Mr Ewer said. “But levels of demand are up by 165pc across Scotland.”
Mr McEwan said: “We would normally have 1,000 properties on our books. Right now we have 400. There are more buyers who want to move to change their lifestyle, but sellers don’t want to list until they can find somewhere to move to.”
The extreme imbalance between supply and demand is driving prices ever higher. Mr McEwan said: “Particularly in the Highlands, we are seeing properties on for £250,000 and people bidding £ 100,000 over the asking price.”
He added: “It’s common to have 10 or 12 bids per property and we’re seeing homes selling for 20pc, 30pc, 40pc over the Home Report price. It doesn’t seem to be abating at all.”
With the frenzy comes instability. Mr McEwan said: “The market is acting irrationally. I am sure it is going to come crashing down soon. People are paying ridiculous amounts. They are going to be in negative equity very quickly if interest rates rise.”
Rising inflation will put pressure on the Bank of England to raise Bank Rate, which will reduce housing affordability. Unemployment is also likely to rise as the furlough scheme ends in September, according to Mr McEwan.
“It is a bubble and it is going to burst some time soon,” he said.
Under the headline figures, there are clear divergences between different markets. Sales are booming in Aberdeen, but this is coming from a
low base. The market has long been depressed: the city is heavily dependent on the North Sea oil industry and property values have fallen since the sector went into decline in 2014.
Post- pandemic relocation trends have brought new life to the market, but it is recovering, not booming. Faisal Choudhry of Savills said: “Aberdeen has a high level of supply, unlike the rest of Scotland, which is suppressing price growth.” In May values in the city of Aberdeen were 2.6pc higher year- on-year, compared with a 7.9pc rise across Aberdeenshire.
The Aberdeen property glut is concentrated below £200,000 – the sector of the market in which landlords are selling off buy- to-lets that they can no longer get tenants for after employment in the oil industry began to decline, according to Mr Choudhry.
Edinburgh also does not have the same shortage of supply as across the rest of Scotland. Data from the property website ESPC showed that the number of listings in the capital between April and last month was 11pc higher than in the same period of 2019.
Paul Hilton of ESPC said this was probably because of landlords who had put Airbnb-style short-term lets, which had ceased to be profitable thanks to travel restrictions, on to the sales market.
But it is not enough to slow the pace of price rises. Mr Ewer said: “There is good supply but crazy demand.”
In the suburb of Niddrie, southeast of Edinburgh, homes listed in the first six months of the year went under offer within eight days on average, according to ESPC.
In Joppa, on the seafront by Portobello Beach, homes achieved 111.7pc of their Home Report valuations. This meant buyers opted to pay an extra 11.7pc of their property’s value in cash. Edinburgh’s West End was the most expensive place to buy in the capital, with average prices at £590,913.