Price reductions are increasingly being used by agents as a tool to generate fresh interest in properties that remain unsold on the market for a number of weeks. They are already having a positive effect on the number of sales taking place across Scotland above £400,000 (see graph 2). We are forecasting gentle growth in prime values in Scotland during 2013 as the balance between supply and demand begins to restore. This is likely to be facilitated by an uplift in transaction numbers in the second half of 2012, primarily enabled by continuing price reductions.
We are currently seeing a significant increase in the number of prime properties undergoing a price reduction. So far this year there have been 907 individual price reductions on prime properties available to purchase in Scotland. This is 50% higher than the figure in 2011. A third of properties launched on to the market in 2011 had at least one price change, with the average price change equalling around -8%.
The huge selection of homes on the market for buyers to choose from, and their inability to raise mortgage finance, has conspired to ensure homes take much longer to sell (see graph 3). At the peak of the market it took an average of 12 weeks to sell a house across Scotland’s cities. In March 2012 this figure stood at 33 weeks. However, by August it had dropped to 26 weeks, so we are seeing some reduction, as sellers become more realistic in their price expectations.
In a thriving market, outlying areas traditionally attract those looking for value for money. However, in the current market we are seeing best in class properties in sought after locations (near schools, amenities and transport links) offering better value for money. This market attracts buyers who need to move for reasons such as education, jobs and families outgrowing their homes or downsizing.
Prices in outlying markets, particularly those in the West surrounding Glasgow, have not yet readjusted. They need to take account of local market conditions and be benchmarked against more sought-after areas.
Mortgage constraints
The continued constraints on mortgage lending since 2008 have led to the dramatic fall in transaction numbers across Scotland. The number of loans for house purchases across Scotland in 2011 fell by 7%, from 47,500 during 2010 to 44,200 last year. During the middle of the last decade, the number of loans averaged around 100,000 per annum across Scotland (see graph 4). There is unlikely to be a significant shift within the mortgage market in the short to medium term, with cash buyers and the equity-rich playing a disproportionate role in the market, particularly with regard to higher value homes. Transaction levels across Scotland are expected to remain steady, but low compared to the last decade, due to continuing constraints on mortgage lending.
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