The grim warning of what may be ahead came despite a nine per cent leap in property sales value to £1.8 billion throughout 2017, with East Renfrewshire crowned as Scotland’s most expensive place to buy a property. Latest figures show the average house price there now stands at £260,158.
New research by estate and letting agent Aberdein Considine also reveals a surge in East Dunbartonshire, where average property prices have risen to almost match those of Edinburgh. The area includes the popular suburbs of Milngavie and Bearsden.
However, despite an apparently upbeat picture which includes property sales in Glasgow exceeding £500 million for the second consecutive quarter, the firm has warned that the property market is being weakened by Scottish Government tax changes aimed at landlords, as well as Westminster’s move towards the staged withdrawal of relief on mortgage payments.
It claims the double hit is already starving the property sector of new landlords and has weakened demand for homes in some parts of Scotland which have been left flooded with stock.
It also warns that landlords are selling properties to avoid the financial hit, with a possible future impact on the rental market and the risk of higher rent charges.
The property experts say the Scottish Government’s three per cent levy on a second home has led to almost two-thirds of homeowners being put off investing, while current investors are now moving to sell-off their properties.
Its quarterly Property Monitor report – the most detailed analysis of Scotland’s housing market – reveals sales fell in 17 of Scotland’s 32 local authority areas during Q4 of 2017.
The fourth quarter of the year showed a 1.1 per cent dip in property sales compared to the same time last year, with a drop from 28,015 to 27,704. It was the only quarter of 2017 where sales fell.
However, it shows Edinburgh is still Scotland’s most valuable property market, with transactions topping £800m during the quarter, up 3.2 per cent on last year.
Jacqueline Law, Managing Partner at Aberdein Considine, which has 19 offices throughout Scotland, said: “There has been a significant change in the Scottish property market in the last six months and it is gathering pace.
“By targeting landlords, politicians north and south of the border are squeezing one of the biggest and most powerful buying forces out of the Scottish property market, which is already affecting sales in certain areas.
“In the Central Belt, there is enough pent up demand from owner-occupiers to cope, so prices are still inflating at pace in places like Edinburgh and Glasgow.
“However, there are other parts of the country where an overprovision of stock could weigh down property values – creating a great market for first-time buyers but really tough conditions for homeowners looking to sell.”
Since April 2016, buyers who already own property have had to pay a three per cent Additional Dwelling Supplement (ADS) on top of the Land and Buildings Transaction Tax (LBTT) due on their purchase.
The UK Government has also commenced the withdrawal of a relief which allows higher-rate taxpayers to offset their buy-to-let mortgage interest payments against their tax bills.
It has also become harder to secure a buy-to-let mortgage due to more stringent underwriting rules for portfolio landlords.
Mrs Law added: “What started as a trickle of landlords leaving the sector in 2017 has now become a steady flow.
“The Scottish Government’s stated aim of ADS was to impose a greater tax burden on those purchasing additional property for investment or recreational purposes, and to increase the volume of owner-occupiers.
“Many people agree with that principle and would welcome lower house prices and a more sustainable Scottish housing market, particularly in our major cities. However, it’s a case of being careful what you wish for, as should this trigger a house price correction of any kind, it needs to happen at a pace which our financial system can cope with.
“Consideration also needs to be given to what will happen to the rental market in the medium-to-long term.
“The basic principles of supply and demand dictate that if there are fewer landlords and fewer rental properties, then average rents may start increasing.”
A Scottish Government spokesman said: “The Scottish Housing Market continues to perform well, with 28,534 transactions in the last three months of 2017 – an annual increase of 2.4 per cent.
“We are working tirelessly to open up the housing market to as many people as possible and since 2007 over 23,000 homes have been purchased through our shared equity schemes. Our reforms to LBTT have prioritised support for first-time buyers and home movers. LBTT is more progressive than the old Stamp Duty Land Tax, and kept over 25,000 house purchases out of tax between April 2015 and October 2017.
“These measures are making the housing market more accessible, and there are arrangements which allow buyers to reclaim any Additional Dwelling Supplement paid where they have disposed of their previous main residence within an 18 month period.”