Scotland Regional Market Report - Winter 2024

Optimistic outlook

As we wrap up what has been a strong year for the housing market, it has fared better than expected with inflation under control and the bank rate on a downward trend. The improving outlook has provided increased certainty for buyers, resulting in a rebound in market activity and a return to price growth.

Economic round-up

Starting the year at 4.0%, CPI inflation has steadily decreased toward its 2.0% target, and while it was higher than expected at 2.3% in October, it is forecast to remain close to the target in 2025 (ONS). The Bank of England reduced interest rates to 4.75% in November, down from 5%, a welcome optimism boost for the housing market, with consensus forecasts projecting a drop to 4% or lower by the end of 2025.* Approximately 640,000 mortgage holders on tracker rates will feel an immediate boost to their finances, and an additional 770,000 on standard variable rates should receive at least some of the cut.

*HM Treasury, Average of Independent Forecasts November 2024

Optimism boost

Even though the latest cut did not flow through to fixed mortgage rates, it gave a further boost to sentiment and rates are still lower than a year ago. The average two- and five-year fixed-rate mortgages are currently at 5.08% and 4.85% respectively, showing a year-on-year decrease of -0.47% and -0.28%.*

The next Bank Rate cut should further boost optimism amongst movers and help to improve affordability through 2025. Mortgage approvals in October reached 68,303, the highest level since August 2022, as market activity builds. This marks a 42% year-on-year increase and a 3% rise compared to October 2019 (Bank of England).

*Podium, 26 November 2024

Buyer groups

Sales activity has been given a boost, driven by a mix of first-time buyers and existing homeowners who had delayed their moving decisions until borrowing costs declined and the outlook improved. First-time buyers are on track to be the largest buyer cohort in 2024, making up 36% of all sales (Zoopla). This is followed by existing homeowners with a mortgage (31%), while cash buyers (consisting of mortgage-free homeowners and investors) are on track to make up 27% of sales. Investors using buy-to-let mortgages are expected to make up the balance, their numbers impacted by rising mortgage rates.

Lettings - Back to the long-term trend

Following the last couple of years of rapid rental growth, the rate of growth is slowing. In November, the average rent was £1,307, a 2.2% year-on-year increase, marking the lowest growth rate since April 2021 (HomeLet). Rental growth is expected to return to its long-term trend after a period of unsustainably high rates of growth. The consensus forecast predicts 3.7% rental growth in 2025 and 3.3% in 2026.*

The government has confirmed that all homes in the private rented sector will have to achieve Energy Performance Certificate ‘C’ or equivalent by 2030. However, two thirds (67%) of investors currently own at least one property that does not meet the new requirements.*

*Savills, Knight Frank, JLL, CBRE, November 2024, Dataloft by PriceHubble

*Foundation Home Loans Q3 2024