Scottish housing market remains subdued but outlook positive

Demand for properties in Scotland dropped again in May, with the number of new buyer enquiries remaining negative for the fourth consecutive month according to the RICS UK Residential Market Survey.

Negative trends, witnessed for the majority of 2019, also continued with agreed sales and new instructions, although house prices held up.

A net balance of -20 per cent more chartered surveyors reported a decline in demand during May, and a net balance of -17 per cent reported a decline in transactions.

Across the UK transaction volumes picked up modestly in Wales and the North of England but were either flat or negative across all other parts of the UK. New instructions to sell continued to fall, with -40 per cent more respondents reporting a drop in new properties coming on to the Scottish market, this is the lowest figure since March 2009.

Marion Currie, RICS registered valuer, Galbraith, said: “Buyers still very active, but vendors increasingly cautious about entering the market which is affecting stock levels and buyer choice.”

Despite the drop-in activity, house prices across Scotland remained firm – in part due to the consistent lack of supply. During May, at net balance of 17 per cent more chartered surveyors reported an increase in house prices, although the short-term outlook is slightly less positive. The regional breakdown shows the South East of England now exhibits the weakest sentiment on price movements, as London appears to bounce back.

In the Scottish lettings market, tenant demand increased slightly for the third month in a row (non-seasonally adjusted data). At the same time, landlord instructions were flat, picking up slightly from a persistent negative theme over much of the past three years. Given this imbalance, near term rental expectations continued to rise across Scotland, with rents seen increasing across all regions/countries of the UK. 

Simon Rubinsohn, RICS chief economist, said: “Across the UK some comfort can be drawn from the results of the latest RICS survey which suggest that the housing market in aggregate may be steading. However, much of the anecdotal insight provided by respondents is still quite cautious which reflects concerns both about the underlying political and economic climate. Significantly, there continues to be considerable emphasis on the need for realistic pricing on the part of vendors which, while not a new story, is indicative of the ongoing challenges.”

Meanwhile the lettings numbers are a source for some concern with rental expectations beginning to accelerate. It remains to be seen whether the pick-up indicated in our data materialises but the deterioration in the net return for landlords certainly provides reason why it is a possible outcome of recent changes in the tax treatment of buy to let investments.