Scotland’s property market has had a bumpy ride since 2014. First, we had the uncertainty over the Scottish Referendum distorting buying patterns, then came the change in Stamp Duty Land Tax (SDLT), and more recently, we’ve faced the Land and Buildings Transaction Tax (LBTT). If that wasn’t enough, the 3% LBTT surcharge was introduced this April for second homes, while the UK’s referendum on EU membership has added yet another layer of uncertainty to the market. And that’s all been against the backdrop of relatively weak economic data.

A taxing matter

Changes in the way property is taxed often fuels increased activity in the market before or after its implementation. The table below shows the effect of the change from SDLT to LBTT which came into effect on 1 April 2015 on residential property purchases in Scotland.

  • Purchase price



    Percentage change from SDLT

    LBTT with surcharge

    percentage change from SDLT





































    Source: Registers of Scotland Data as at April 2016

Residential property

Data from Registers of Scotland (ROS) shows that the average house price currently sits at £169,402. The table clearly highlights how the change in tax has benefitted the lower end of the market, principally first-time buyers.

For the residential market priced below £1m, average house prices have been relatively robust, with 2015 seeing a modest 3.6% increase in value on 2014 and the previous year experiencing a 4.3% rise (source: ROS). But transaction volumes are down significantly from their peak in 2008 and have only started to show a very gradual upwards trend since 2012.

Land and Buildings Transaction Tax has benefitted the lower end of the market, principally first-time buyers.

The £169,402 value of the average house price in Scotland is up from just below £160,000 in 2008. Low interest rates and a reduction in LBTT have helped first-time buyers, as well as – up until 1 April of this year – buy-to-let investors. In general, the sub-£750,000 market – particularly within the main cities of Aberdeen (until the recent oil price crash), Edinburgh and Glasgow – has performed relatively well and, on the whole, is back to close to the peak values of 2007-2008.

Looking at the prime market, specifically property over £1m, we see a slightly different picture. The table below shows property transactions in this price bracket in Scotland for the last 10 financial years.

  • Financial Year


    % change from previous year

    Total value

    % change from previous year

    Average Value

    % change from previous year







































































    Source: Registers of Scotland Data as at April 2016

What this data shows is that the average value of prime residential property throughout Scotland has remained relatively consistent over the past 10 years, although the most recent figures show a 9.2% fall in average value from the peak in 2006-2007. There was a significant spike in transactions in 2007-2008, just before we entered the financial crisis. An upturn in activity for the year ending April 2015 was expected, as this was driven almost exclusively by the impending implementation of LBTT on 1 April 2015.

However, with the exception of 2014-2015, there has been a general downward movement in average values in the prime market, with the most recent figures showing the lowest average value in 10 years. From our experience, this generally reflects sentiment within the market, with prospective buyers very sensitive to the increased tax charges but also nervous about the economic health of the UK, and of Scotland in particular.

So what does the future hold for the residential market in Scotland?

ROS data for Scottish properties valued below £1m for the fourth quarter (January-March 2016) shows an increase in transactional volumes of 18.2%, when compared to the same period last year. The largest rise in the volume of sales was recorded in Midlothian – up 48% year on year – and the highest volume of sales were in Edinburgh City, an increase of 24% over the previous year. This increase in volume is primarily a result of buy-to-let investors entering the market ahead of the 3% surcharge in LBTT.


Harder times for buy to let 

Looking ahead, we expect the buy-to-let market to come under increasing pressure. As of 2017, tax changes will come into force that will reduce the tax relief on mortgage interest for private landlords. This will increase some investors’ annual tax bills and also push more investment owners out of the basic rate tax band.

The Scottish government is introducing new legislation that will significantly change the way in which residential properties are let

And at around the same time, the Scottish government is introducing new legislation that will significantly change the way in which residential properties are let. The Private Housing (Tenancies) (Scotland) Act 2016 will introduce a new Private Residential Tenancy (PRT).

This is designed to provide tenants with greater security and to shield them from significant rent increases, by setting out how the rent can be increased, making provision for tenants to refer increases to a rent officer, and  creating the ability to introduce rent pressure zones, effectively rental caps.

Importantly, there are also very specific grounds under which the landlord can evict tenants and the ‘no fault ground’ – which after the period of the initial let, is a notice to quit served by the landlord – is being removed. The notice period for regaining possession on some of the specified grounds is also being extended where the tenancy is for more than six months. In some instances, 84 days’ (three months) notice must be given to the tenant.

We anticipate that lenders will consider these changes as making the assets less liquid and, accordingly, we expect that they will either increase borrowing rates or seek to increase the minimal rental cover for landlords' loans. Generally, this currently sits between 125%-135%, but could push out to 145%-150%.

The effect of these changes is likely to be increased borrowing and management costs. For some prospective landlords or those looking to re-mortgage, it may well become difficult to obtain loans. For those with property that requires re-mortgaging in the next few years, this may be a significant issue, particularly where additional equity may be needed to offset any change in the minimal rental cover.

The prime market is still facing considerable headwinds. This is primarily due to uncertainty over the economy, but also the result of increased transactional tax and the threat of further tax changes to come, such as council tax.  However, there is more activity within Edinburgh and the broader country market in the £750,000 to £1m bracket, and it is hoped that this will spill over to the £1m plus market – though this may not result in a broad recovery of values.

Outside of Edinburgh, supply within the prime market remains high, with the statistics masking the considerable increase in the average time it takes for this type of property to sell. Monitoring the market closely, we have seen a marked increase in the number of properties that have been subject to price adjustments and this is reflected in the general downward slide in values. Arguably, low interest rates have enabled vendors to hold on to their property for longer than they may have planned, with the hope of achieving a price closer to their original expectation.

Again, there are some significant changes ahead for land ownership in Scotland. The passage of the Land Reform (Scotland) Act 2016 has been the subject of much debate. Although the Act has been passed, it is still very much a work in progress, with much of the detail being left to secondary legislation. This has resulted in some uncertainty in the land market and particularly the estate market.

Farming has been going through a difficult period over the last few years. The most recent figures from the Scottish government reveal that for the crop year 2014-2015, the average Farm Business Income (FBI) was £23,000, the lowest level since 2009-2010. This represents a fall of 26% over the previous year and a 55% slide from the peak in 2010-2011.

Famers are facing the most severe drop in income since the BSE outbreaks of the mid-1990s, with one in five farm businesses making a loss in 2014-2015. When subsidy payments are excluded, the average FBI showed a loss in 2014-2015 of £17,000. Indeed, losses have occurred over the last six years.

What has caused this? Responsibility can be attributed to falling commodity prices, falling subsidy payments (on average by £7,000, to £31,000 per farm) and increased input costs, especially those associated with machinery, land and buildings.

The troubles of the dairy industry are well documented, as are the issues faced by all Scottish farmers through delays in receiving their 2015 subsidy payment.

Land availability is up some 50% on the same period in 2015

It is hardly surprising then that farmland sales activity increased some 45% in 2015 over the previous year, and early indications from the first quarter of 2016 are that land availability is up some 50% on the same period in 2015. That said, although last year saw more land on the market, land availability is still at a historically low level, and this lack of supply was a key factor in helping keep land values stable last year.

Savills recently produced some interesting nationwide statistics which showed the motives for selling; some 40% of farmers cited retirement, while 30% named debt. In Scotland, it is estimated that 65% of farmers are over 55 years of age and the average farm size is approximately 340 acres.

We expect more land to come to the market in the next five years, as commodity prices are likely to remain low. We anticipate greater diversity in values on farmland, with commercial-grade farms performing the best, while those in marginal areas see weak demand. There will, of course, remain exceptional sales where neighbours are seeking to expand existing businesses or non-farming money comes into the market. But on the whole, we feel that land prices may have peaked and we expect a gradual readjustment in value.

However, this may change if sterling weakens significantly in the event of Brexit. Non-UK buyers are likely in this scenario to be looking at the UK and Scotland, and this may be more relevant for the larger estate market.

However, over the long term, whether we are in or out of the EU and accepting that Land Reform will result in a change of the land ownership structure (with increased pressures on a finite resource and assuming a non-punitive tax regime), we expect land values in Scotland to rise.

Director, Saint Property

Lord Matthew Sinclair

Matthew has 24 years’ experience of the Scottish property market and has been a qualified Chartered Surveyor since 1994. In addition he is a former Associate Partner of Smiths Gore (now Savills), based in the Edinburgh Office, where he focused primarily on the management of estates for private and institutional clients, including the Crown Estate and The Coal Authority.

Matthew is the former Head of Smiths Gore’s Rural Agency Department for Scotland, concentrating on the sale of farms, estates and rural houses, in the past Chairman of both the Scottish Land and Estates (SL&E) south west region and the Game and Wildlife Conservation Trust (GWCT) Scottish Auction and Deputy Lieutenant (DL) for the Stewartry Region

Matthew established Saint Property in 2001.

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