LSL Property Services : Nov 16 Scottish House Price Index

Under embargo until 00:01 Friday 20th January 2017 November 2016‌

November proves to be a quiet month for Scotland's house prices

• Argyll and Bute sees highest price movement in the month
• Purchases of homes in excess of £750k decline from October levels
• Forecasts for 2017 house prices are relatively subdued

House Price	Index	Monthly Change %	Annual Change %
£171,876	225.1	0.1	2.1

After a big rise in October, price growth slowed in November, creeping up just 0.1%. The average Scottish house increased in value by £122 and is now worth £171,876. Sales of high value homes, particularly, which surged in October, returned to more normal levels in November.

In the absence of significant falls in December, the trend for 2016 in Scottish housing will be one of modest but steady growth. As of November, average prices were up 2.1% on an annual basis and look set to end the year at their highest level since May 2015.

Christine Campbell, Your Move managing director in Scotland, said: "Scotland property prices have continued to push up this year. Despite all the uncertainty of the last 12 months, the market enters 2017 having proved its resilience." Alan Penman, business development manager for Walker Fraser Steele, one of Scotland's oldest firms of chartered surveyors and part of the LSL group of companies, said: "The last few months have really highlighted how sales at the top of the market can impact the average figures, and how heavily these are affected by government policies. Nevertheless, most areas in Scotland continue to see modest growth despite all that's been thrown at the market this year."

The slowdown in November follows October's rise on the back of cheaper mortgages after the August interest rate cut - one of three significant disruptions this year. The others were the 3% LBTT (in full) surcharge on second homes in April, which was preceded by a spike in prices; and a slump in June at the time of the Brexit vote. Throughout the whole of the year, prices have trended gently upwards at about 0.15% a month.

Transactions of high value properties fell back in November, with just 17, compared to 52 in October. Year to date, there have been 401 transactions over £750,000 against 555 in the whole of 2015 (231 of those in March, ahead of the new LBTT rates). Brexit and the impact of Land & Buildings Transaction Tax on homes worth over £750,000 (which pay the top 12% rate) continue to dampen forecasts of price rises for 2017.

Despite the challenges, high value areas have seen some of the biggest price increases over the last year. East Dunbartonshire saw the greatest increase in prices, up 12.3% in the last 12 months to make it the third most expensive local authority, with an average price of £239,789. East Renfrewshire, which has overtaken Edinburgh to become the most expensive area, has increased 10.5%, with prices at £255,523. Only Clackmannanshire can also boast double digit growth over the year, with prices increasing 11.3%.

On a monthly basis, Argyll and Bute, up 3.9%, saw the biggest increase, again reflecting the impact of high value properties, with two sales of houses close to £1 million each pushing up the figure. The biggest falls in prices were seen in Inverclyde and North Ayrshire, down 4.5% and 5.3% respectively in November. The cheapest areas other than Na h-Eileanan Siar, they have also seen some of the poorest annual performance. Overall, though, 24 of Scotland's 32 areas have seen price rises over the last year.

For commentary by John Tindale, Acadata's senior housing analyst, see page 3.

House price index: historical data

Table 1. Average House Prices in Scotland for the period November 2015 - November 2016 link to source Excel (The prices are end-month smoothed over a 3 month period)

House Price	Index	Monthly Change %	Annual Change %
November	2015	£168,317	220.4	0.4	1.8
December	2015	£168,547	220.7	0.1	1.6
January	2016	£168,798	221.1	0.1	0.9
February	2016	£168,207	220.3	-0.4	-2.4
March	2016	£170,281	223.0	1.2	-9.5
April	2016	£170,243	223.0	0.0	-8.0
May	2016	£170,430	223.2	0.1	-5.5
June	2016	£168,866	221.2	-0.9	3.2
July	2016	£168,824	221.1	0.0	2.4
August	2016	£169,466	221.9	0.4	2.2
September	2016	£169,796	222.4	0.2	1.9
October	2016	£171,754	224.9	1.2	2.5
November	2016	£171,876	225.1	0.1	2.1

Press Contacts:

Melanie Cowell, LSL Property Services	01904 698860	[e-mail]
Richard Sumner, Acadata	020 8392 9082	[e-mail]
Sophie Placido, Rostrum Agency	020 7440 8678	[e-mail]

John Tindale, senior housing analyst for Acadata, comments: The November housing market

House prices in November rose by £122, or 0.1%, during the month, and by £3,560, or 2.1%, over the last year. Both the monthly and annual rates have slowed in comparison to October 2016. Figure 1 below shows the movement in house prices over the last year. In general, prices have been oscillating gently around the trend line, which shows an increase of approximately 0.15% per month, or 1.8% over the year.

The first above-average hike in prices above the trend line occurred in March 2016, when a surge in sales took place (see Figure 2 on the next page) immediately prior to the April 1st introduction of the 3% surcharge in LBTT on second homes, including buy-to-let properties. However, prices dropped back below the trend line in June 2016, at the time of the Brexit referendum. The second above-average growth in prices took place in October 2016, soon after interest rates had fallen to an all-time historic low - the Bank of England base rate was reduced to 0.25% on 4th August 2016, with Building Societies and Banks reacting to this move by lowering their own rates soon thereafter. This reduction in rates encouraged buyers of higher-value properties to re-enter the market in October, with the number of purchases of £750k plus homes in the month reaching a near high point for the year. In November, the quantum of such transactions has returned to more normal levels.

£172,500

£170,000

£167,500

£165,000

Average House Prices in Scotland November 2015 - November 2016

Scotland

12 month trend

Figure 1. Average House Prices in Scotland, November 2015 - November 2016. The series is mix and seasonally adjusted link to source Excel

The (revised) 1.2% increase in prices in October was surprising, as it surpassed the monthly rates experienced in all 10 of the GOR areas in England & Wales, where the average rate equalled 0.3%. The current monthly rise in prices of 0.1% in Scotland now matches the average for England & Wales as a whole, although on an individual basis there are only two 2 regions in England where rates are lower, being the South East at 0.0% and Greater London at -0.3%. In these regions, it is mainly the high-value areas that are seeing prices fall, with for example Windsor & Maidenhead having the largest reduction in prices over the year of all the 108 unitary authorities/counties in England & Wales, at -4.8%. In Greater London, Hammersmith and Fulham (the fourth most expensive borough in London) is experiencing annual price reductions of -11.5%. Many commentators suggest that the 'new' rate of stamp duty in England and Wales, at 12% on properties in excess of £1.5 million, is resulting in a decline in high-value transactions across the country. In Scotland, the LBTT top rate of 12% becomes payable on all properties having a value in excess of £750k. We explore this sector of the market in more detail later in this report.

At this stage in the year, it is usual for 'experts' in the field to make forecasts of what the next year (2017) may bring in terms of house prices. We look at a few of the published figures for Scotland. In general, the major concerns of forecasters are the Brexit effect, the shortage of stock coming on to the market and the high rates of stamp duty (and LBTT) at the top end of the market, all countered by an expectation of continuing levels of low interest rates. Savills, in its Regional Forecast published in Nov 2016, predicts price falls of -2.5% for Scotland's 'Mainstream' market, with a nil change position for its 'Prime' markets. Savills suggests that "Scotland is likely to continue to see price growth in line with the North of England, with the strongest growing markets focused in the central belt. Aberdeen, which showed the strongest post-credit crunch growth, will continue to be a drag on the national numbers as long as oil prices remain low." Knight Frank in its Housing Market Forecast, Nov 2016, states that "Price growth in 2017 is expected to be notably slower than this year, in all regions" and are forecasting a 0.1% increase in prices in Scotland. RICS do not give a specific forecast for Scotland, but suggest overall in the UK an increase in prices of 3%, with East Anglia, the North West and the West Midlands recording higher gains than the national average. "The supply pipeline or lack of it is at the forefront of the analysis and dominates

the residential market", RICS said. The JLL property group in its Residential Forecast Report dated November 2016, anticipates a 0.0% price movement for Scotland in 2017, compared to a fall in prices of -0.1% in the North East and Wales, and a 0.5% rise for the UK overall. A common feature of all these forecasts is that house price inflation in 2017 will be lower than 2016.

Transactions analysis

In August 2016, the latest month for which the official ONS statistics are published, transactions in Scotland totalled 8,468 properties. This total was 7% down on the previous month, the decline being greater than the usual seasonal trend for the time of year, when a decrease of 1% can be expected, largely due to school holidays. Sales in the month of August 2016 were also 3% below the same month in 2015. The ONS statistics show an overall decline of 10% in sales for the period April

- August 2016, compared to the same period in 2015, which is readily discernible in Figure 2 below. However, the major reason for the lower level of sales post-March 2016, compared to 2015, is a consequence of the large number of property purchases that were brought forward into March 2016, as buyers sought to avoid paying the additional 3% LBTT surcharge on second homes and buy-to-let properties. Overall, for the eight months Jan - August 2016, sales are 1% lower than the same period in 2015.

Number of houses per month

11,500

10,500

9,500

8,500

7,500

6,500

5,500

4,500

3,500

Housing Registrations in Scotland per Month 2013 - 2016

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2016

2015

2014

2013

Figure 2. The number of sales per month recorded by Registers of Scotland based on entry date, for the period January 2013 - August 2016. Source: Registers of Scotland. link to source Excel

A number of the forecasts for house prices in 2017 put forward the case that transactions in high-value properties have reduced, due to the high levels of LBTT that came into force in April 2015, and the subsequent 3% surcharge on second homes and buy-to-let properties in April 2016. We look at the numbers:-

Table 2. Number of properties sold per month in 2015 and 2016 having a value of £750k, or higher link to source Excel

Sales of £750k+
Month	2015	2016
1	33	26
2	42	20
3	231	58
4	2	27
5	14	21
6	26	47
7	15	36
8	42	54
9	46	43
10	23	52
11	47	17
12	34
Total	555	401

Table 2 is dominated by the large number of sales that took place in March 2015, immediately prior to the introduction of the new LBTT rates. Additionally, there is a similar, but lesser, spike in transaction numbers in March 2016, prior to the introduction of the 3% surcharge in LBTT on second homes and buy-to-let properties.

Clearly the total number of transactions in 2015 outweighs that of 2016, by 23% if we take the first eleven months of each year. However, looking at the six-month period June - November in both years, 2016 then sees an increase of 25% in the number of properties sold over £750k, compared to 2015.

One of the imponderables in this analysis is whether the effects of the change in tax in April 2015 had worked through the system by June 2015, or whether it was still experiencing a shortfall in numbers, with sales having been brought forward into March 2015. The conclusions reached by this analysis may have considerable impact on one of the fundamental elements put forward by the forecasters when looking at the outturn for 2017.

Source: RoS price paid dataset. The dates used in this analysis are those of the legal transfer of the property, as opposed to the application date, which is used by RoS in its own figures.