The Scotland of tourist brochures is often a place of wide open spaces, mountains, glens and lochs. This is all true, but there is also a population of some 5 million people, all of whom need a place to live and many of whom need a place to work as well. Employment in Scotland is focused on certain key cities, mostly in the so-called Central Belt (actually in the South), which means that adults of working age generally need to live within travelling distance of one of these places. This in turn means that the housing market in Scotland is driven by lack of supply in key areas, essentially in much the same way as in other parts of the UK.
A peculiarity of the Scottish housing market LBTT v Stamp Duty
The devolved Scottish government changed stamp duty to the Land and Buildings Transaction Tax, which basically works exactly the same way (including the 3% surcharge on purchases of second or subsequent residential properties) but has a different banding system. In short, in Scotland LBTT is payable on properties priced at over £145K (as opposed to over £125K in other parts of the UK). Properties priced between £145,001 and £250K are taxed at 2% (as elsewhere). The 5% tax band, however only applies to properties priced at up to £325K (as opposed to £925K elsewhere) and the 10% band only applies up to £750K (as opposed to £1.5M elsewhere). All properties sold for more than this are taxed at 12%.
LBTT and its impact on the market
Unsurprisingly, the effect of LBTT has mainly been manifest in the areas which were already Scotland’s property hotspots, above all Edinburgh and its surrounding commuter belt and also Glasgow. While the Aberdeen market did experience a slowdown at about the same time, it’s unclear if this was as a result of the effect of LBTT or a result of a slowdown in the oil industry. More recently the impact of the Brexit vote may also have impacted sales at the upper end of the market as it raises the prospect of another independence referendum. Notwithstanding this, while the market for premium properties did soften, it did not collapse and there was still clear demand for housing within commuting distance of Edinburgh and Glasgow and in particular within the catchment area of good schools.
New build keeps the market’s wheels turning
The demand for homes in Scotland’s Central Belt and, in particular, property investments in Glasgow and Edinburgh is so high that new-build properties are essentially being snapped up off plan. While many of these developments are clearly aimed at the first-time buyer market, there have also been a number of developments of larger properties for use as family homes and these have helped to sustain the level of transactions at the £400K+ level, particularly in the Lothians. Notwithstanding this, lack of supply is encouraging some buyers to look further afield into Fife, Stirlingshire and even Tayside. The Fife market in particular could benefit from the opening of the new Forth Bridge, officially known as the Queensferry Crossing, which is scheduled for May 2017.