Demand weakens in Scottish residential property market amid rising prices

08/06/2023

RICS Residential Market Survey Scotland, May 2023

ACTIVITY in Scotland’s housing market continued to slow through May according to the latest Royal Institution of Chartered Surveyors (RICS) Residential Market Survey, and forward-looking indicators suggest that expectations about further interest rate rises may introduce downward pressure on the market in the months ahead.

As was seen in April, demand and supply levels in Scotland remained in negative territory in the latest survey with a net balance of -34% of respondents reporting a fall in new buyer enquiries, down from -22% the month previous, and a net balance of -23% of surveyors reporting a fall in new instructions to sell.

With both demand and supply lower, sales also continued to fall back, with a net balance of -19% of respondents reporting a fall in sales through the month of April.

Weak activity appears to be weighing on surveyors’ expectations. Sales are expected to be broadly flat over the next quarter, whilst a net balance of -12% of respondents was recorded for three-month price expectations.

For now though, it seems that prices are holding up well. Indeed, a net balance of +33% of respondents saw prices rise over the past quarter, up from +23% in in April.

And despite the weaking demand and outlook, surveyors in Scotland are more optimistic compared to the UK average, where -29% of respondents expect prices to fall over the next quarter.

Thomas Baird, MRICS of Select Surveyors in Glasgow said: “Whilst there is a clear slowdown in the Scottish residential market, we have seen some uplift in the number of home report instructions and perhaps signs of a bounce back.”

Ian Morton, MRICS of Bradburne & Co in St Andrews added: “The market has stagnated earlier than the usual summer holiday slow down and sale prices are closer to Home Report figures.”

Commenting on the UK picture as a whole, RICS Senior Economist, Tarrant Parsons, said:

“The latest RICS UK Residential Survey feedback indicates a modest recovery in the sales market activity during May, with generally less negativity compared to the end of 2022.

“However, it seems storm clouds are gathered, with the UK’s stubbornly high inflation likely undermining the recent improvement in activity by prompting the Bank of England to take further action through interest rate rises, leading to higher mortgage rates and ultimately reducing affordability and buyer demand. The banking sector appears to expect this with many banks and building societies already introducing products with higher interest rates.

“Interest rate rises are also impacting the rental sector and combined with looming reforms proposed in the government’s Renters (Reform) Bill, landlords are increasingly deciding to leave the sector and sell up property, causing further constraints to lettings supply.”

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