Million pound market

Scotland’s million pound market has felt the biggest brunt of the new taxation changes. The vast majority of sales in this bracket completed prior to 1 April, before LBTT was introduced. While there has been a slight uplift in activity in recent weeks, sales have mostly been focussed on the core locations of Edinburgh, East Lothian, East Renfrewshire and East Dunbartonshire and also in Aberdeen, which saw the most expensive sale since April this year at £2.78 million.

As the economy improves, and buyers from both sides of the border adjust to the new taxation structure, we expect this upward trend to continue. While the million pound market is beginning to recover in Scotland’s capital, buyer activity in more provincial locations remains subdued.

Even taking into account the additional burden of LBTT, Scotland remains excellent value for money compared with other parts of the UK.

There were 15 sales at £1 million and above in Scotland registered between May and July 2015, compared with 42 in the same period last year, representing a 64% annual drop. Only 11 sales completed from the period April to July this year. Two of these came from outside Scotland, including one from England. Interestingly, in normal circumstances, a third of buyers at this price range originate from outside Scotland (see Figure 2).

^{Source: Savills Research, MyHousePrice.com}

Prime market

There were 639 prime sales which registered in Scotland at £400,000 or above between May and July this year. This compares to 925 sales in the same period last year, representing a drop of 31%. Edinburgh remains the hub of Scotland’s prime market, accounting for 37% of sales between May and July this year.

A closer look at different price bands within the prime market shows varying levels of performance. The overall 31% drop in prime Scottish sales was mainly due to a sharp fall in activity above £750,000. The number of sales in this price band fell from 117 between May and July last year to just 46 over the same period this year, representing a 61% drop. Edinburgh accounted for 13 sales above £750,000.

The level of LBTT for sales between £750,000 and £1 million in Scotland is on average 84% higher compared to the current Stamp Duty Tax applicable across the rest of the UK and 80% higher than the previous structure operating before December 2014 (see Figure 3).

Source: Savills Research, MyHousePrice.com

In the longer term we expect prime regional activity to remain limited, unless there is a significant downward shift in values in country locations, in order to match the level at which buyers are willing to transact, bearing in mind the additional burden of LBTT. This may go some way towards jumpstarting the residential market in rural locations, allowing both downsizers to move, and younger people to upsize.

^{Source: Savills Research} 

International buyers

International buyers have not been put off by the changing political climate and continue to see Scotland as an investment opportunity. The proportion of such buyers has remained stable compared to last year. The majority of international sales of residential properties are concentrated in Edinburgh, key country hotspots like St Andrews, driven by the allure of the Open Golf, and the country estate market. Buyers are investing in Scotland from a wide range of international locations including the US, Australia, China, France, India, Ireland and Italy. It would appear that for them the changes to LBTT and the political environment are inconsequential.

^{↑ Heriot Row (offers over £2.4m), an entire townhouse and mews house, in the heart of the New Town of Edinburgh, which continues to attract buyers from London and overseas}

Market below £400,000

In addition to favourable rates of LBTT and in contrast to the current challenges facing the prime market in Scotland, there is a more positive picture across the bulk of the market, priced at below £400,000. This market saw an 8% uplift in sales activity between May and July 2015 compared to the same period last year, with locations that were previously lagging, now showing strong levels of growth.

These include Glasgow City, Dumfries & Galloway, Ayrshire, Lanarkshire and West Dunbartonshire. Further growth has also taken place in commuter locations, like Tayside, Falkirk, West Lothian and the Borders. Many of these areas were supported by increased new build activity and attainable prices.

Traditional hotspots such as East Renfrewshire and Stirling have also enjoyed a strong market this summer, supported by good schools, excellent transport links and high levels of affluence (see Figure 5).

Source: Savills Research, MyHousePrice.com

While lending criteria remains strict, there has been an increase in the level of mortgages granted, with the best rates restricted to those with higher levels of equity. Furthermore, various Help to Buy schemes and the gently improving economy, leading to increased consumer confidence, are all combining to support this market.

Whereas the prime market, particularly in rural locations, tends to be discretionary with buyers motivated by lifestyle choices rather than necessity, the bulk of the market below £400,000 is made up of buyers moving within Scotland, driven by the need to be near schools, work or changes in household structures. It is less dependent on buyers moving from the south or overseas for a change of lifestyle.

In the longer term, we expect improved sales activity across this market to fuel a prime recovery, particularly in country locations. This will be particularly effective if there is a simultaneous readjustment in prime values outside the core hubs.

LBTT update

■  Scottish Government has set itself a target of £235 million to be generated from residential sales in this financial year (2015/16).

■  However, there was a 64% reduction in the number of sales above £1m between May and July 2015 compared to the same period in 2014.

■  In addition, there was an improvement of only 3% in sales activity across the market as a whole in the same period.

■  As a consequence of reduced activity at the top end of the market, the total LBTT generated between May and July 2015 was 31% lower than SDLT generated between the same period in 2014.