Scottish house prices to grow by a fifth and outpace rest of UK over next five years - PwC

The findings, part of the professional services firm’s July 2018 UK Economic Outlook, indicates that house prices will increase by 4.8 per cent in 2018, comfortably outpacing the UK average.

PwC expects to see a softening of average UK house price growth to 2.9 per cent, with prices expected to rise across the UK with the exception of London, where we expect a 1.7 per cent fall.

The housing market in Scotland will prove stronger than in any other part of the UK this year, with only the West Midlands predicted to match the 4.8 per cent growth level expected north of the Border.

House price growth in Scotland will slow to 3.4 per cent in 2019, still ahead of the UK average of 2.8 per cent. Between 2020 and 2022 the growth in house prices in Scotland are predicted to average 3.6 per cent, ahead of a 3.4 per cent UK average.

This means that the average house price in Scotland, which was £143,000 in 2017, will increase by 20 per cent to £172,000 in 2022.

This comes as housing sales volumes in Scotland declined 9.1 per cent year-on-year to February 2018.

The average UK house price is estimated to rise from £221,000 in 2017 to around £285,000 by 2025 according to PwC’s projections. Price growth at this pace means the ratio of house prices to earnings is likely to remain broadly stable, but still at high levels by historical standards.

David Brown, Government & Public Sector leader for PwC in Scotland, said: “The Scottish housing market is set to grow at a faster pace than anywhere else in the UK in 2018, and we predict a 20% increase in the average house price, to £172,000, between 2017 and 2022.

“Such an increase is likely to widen the gap between wage growth and house price growth, which could impact activity in the market, though this will be mitigated to some extent by the ongoing shortage of new homes being built in Scotland.”

PwC has also analysed the recent marked trend towards fixed rate mortgages, which in 2017 accounted for 94% of new mortgages compared to only around 50% in 2010. At the same time, only around 28 per cent of UK households now have a mortgage, as opposed to renting or owning their home outright. Combining these two factors, we estimate that only around 11 per cent of all UK households would be immediately affected if mortgage interest rates rose, compared to around 24 per cent in 2012.

John Hawksworth, chief economist at PwC, said: “The MPC has a finely balanced decision to make on interest rates in August. But they should not be overly concerned about small rate rises causing significant short-term economic damage, given our estimate that only around 11% of UK households would be immediately affected by any rise in mortgage rates.”