Research Scottish property Scottish referendum

The Pre-referendum Scottish property market

Q3 2015

With the Scottish public casting its vote on whether or not it wants Scotland to leave the United Kingdom on 18th September, Robert McCulloch, Partner in our Edinburgh office, looks at the effects on the Scottish property market.

With the Scottish public casting its vote on whether or not it wants Scotland to leave the United Kingdom on 18th September, Robert McCulloch, Partner in our Edinburgh office, looks at the effects on the Scottish property market.

Politically, the gloves are now off with the pugilists on either side becoming increasingly aggressive as the “fight for votes” enters its final rounds. Speculation about the outcome of the vote and the potential consequences of either result is rife, and nowhere more so than in the Scottish property markets.

As a firm of agents handling sales in market sectors ranging from the flat and townhouse markets in Edinburgh to holiday cottages in the Western Isles and sporting estates in the central Highlands, my colleagues at Strutt & Parker and I are well placed to observe the effect of uncertainty that the referendum is causing.

In all market sectors at present, the subject of the independence referendum is dominating conversation. When we meet new clients to inspect their property for the first time, the opening half hour of discussion usually centres on the referendum and its impact on the property market.

The reality is that different sectors of the Scottish property markets are responding in different ways to the uncertainty that prevails. In central Edinburgh, for example, demand for two to four-bedroom flats and houses at values of between £150,000 and £600,000 has been higher than for several years, with sales being achieved quickly and often at premium prices at closing dates for best and final offers. This appears to be driven by a relative shortage of supply, coupled with improved availability of mortgage finance and the government-backed Help to Buy scheme. At this level, there does not appear to be any obvious “referendum effect”.

The higher value market sector is traditionally driven by people with very well-paid, mainly private sector jobs, together with English buyers moving to Scotland (for employment or retirement reasons), and also returning Scots who have forged successful careers in England or abroad and wish to return home. For buyers in this sector, a vote for independence could mean the relocation of their job or a possible reduction in value of their existing property. Therefore, it is not surprising that a significant proportion of them have told us that they are awaiting the outcome of the vote before committing to buying a property.

In the farmland sector – where, in contrast to the residential sector, values have been steadily rising over the last six years – there remains a good head of demand which is thwarted at present by a shortage of supply of farms for sale. The referendum effect is partly accountable, although the caution created is afflicting vendors more than purchasers. It is compounded by the Common Agricultural Policy reform, which takes effect from 2015 and fundamentally alters the basis on which farmers can claim their European Union Subsidy and the amount they receive.

The Scottish estate market is an interesting case study in terms of the referendum effect. Over the last five years, this niche sector has varied from a high of 23 transactions in a single year (2012) to a low of 13 transactions in 2009 (following the onset of the global financial crisis). The total amount of money invested has ranged from £34.0 million in 2009 to £81.5 million in 2011. Whilst last year, 16 estates were sold in Scotland out of a total of 24 offered for sale, 2014 has been very different with just three estates having been launched new to the open market. This is a major reduction in supply, which is undoubtedly due in the major part to the referendum effect. Whilst, understandably, some putative buyers simply will not invest until the votes have been cast in September and the future of Scotland is more clearly understood, other buyers see the current climate as a time of opportunity and are frustrated by the lack of availability of estates to buy. It seems to us, therefore, that the lack of supply of estates for sale is mainly due to the caution which vendors are experiencing rather than that which is affecting buyers.

Whilst providing a commentary on our current experience of market conditions is the easy part, predicting the future beyond 18 September 2014 is considerably more difficult and, whilst talented estate agents we may be, clairvoyants we certainly are not!

Our clients do look to us, however, to provide some sort of answer to the question of “what lies beyond?” but the truth is that we, as property professionals, have no better idea than anyone else. This is because the referendum on independence provides a set of circumstances which are unique across the whole breadth of Scottish business.

It is somewhat easier to predict the effect of a ‘No’ result becoming reality. My view is that a vote to remain beneath the economic “security blanket” of the United Kingdom will inject confidence into all market sectors. With the brakes of caution removed, the rising tide of economic recovery which has washed through most sectors of the English property market over the last year is likely to belatedly benefit Scotland.