Rising prices disguise falling sales

by Mark Hordern, GSPC

28 April 2015

House prices in Scotland rose by 13% in the last 12 months according to the Registers of Scotland. The average house price in Scotland from January to March was £173,830, the highest figure recorded for any quarter since RoS began compiling quarterly statistics in 2003.

But the result that is just as important but which might not make the headlines is the decline in the volume of sales.

While all local authorities in Scotland showed a rise in average property prices, there was huge variation in the pace of growth. Prices in Edinburgh are 20% higher than this time last year, but the increase in North Lanarkshire is just 1.6%. In short, not everyone is going to see a 13% increase in the value of their home.

RoS also reports that sales in the three months from January to March were down almost 5% compared to the same time last year (see graph). This is the second consecutive quarter that has seen sales volumes decrease.

The silver lining is that sales in March were better than in the same month last year which might signal the start of a recovery, but sales have been below the same month last year for four out of the last six months.

The rise in prices is partly a response to this lack of supply and partly down to mortgage interest rates that seem astonishingly low. But the simultaneous decline in mortgage approvals suggests that at least some would-be buyers are finding it difficult to get a mortgage.

This is particularly true for existing home owners who find that they don’t have enough equity in their current home to qualify for a new mortgage under the tougher affordability rules introduced last year. It is this group, above all, which could increase the number of homes coming on to the market if only lending criteria allowed them to take the next step on the ladder.

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