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Cliff edge warning

Price of homes rockets as tax relief deadline nears

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Prices of properties have surged (pic: Terry Murden)

Pent-up demand in the housing market and buyers rushing to beat the March deadline on tax relief have combined to fuel a continuing rise in the cost of a home.

Property prices in Scotland leapt by 8.6% in November to an average £165,703, ahead of the UK average of 7.6%.

The number of properties sold in Scotland in September 2020 compared to the same month a year earlier rocketed by 17.8% to 10,168 as the market reopened.

Registers of Scotland accountable officer Janet Egdell said: “The volume of transactions in September 2020 was high, catching up on some of the reduction in activity in the market in the previous months.”

Terraced properties showed the largest increase, rising by 10% in the year to November to £139,874. Flats showed the smallest increase, rising by 6.8% in the year to September to £117,109. Housing analysts say this reflects a desire to find homes with space to work and with gardens.

Average price increases were recorded in all but one local authority area, compared with the previous year.

David Alexander

David Alexander: LBTT warning

The largest increase was in East Ayrshire where the average price increased by 15.6% to £110,073. The only decrease was recorded in Aberdeen City, where the average price fell by 3.4% to £140,629.

In November, Edinburgh was the highest-priced area, with an average price of £287,239. In contrast, the lowest-priced area was East Ayrshire, at £110,073 on average.

Earlier this month David Alexander of Apropos said the support provided through the Land and Buildings Transaction Tax (LBTT) threshold extension has encouraged individuals to move despite uncertainties caused by the pandemic.

However, with the LBTT threshold extension about to end in March alongside an expected rise in unemployment he said there is a serious risk of the market hitting a financial cliff edge which could result in a sudden fall in Scottish property values.

If the Chancellor decides to increase capital gains tax on second homes and investment properties, then much of the recent growth in the market could quickly become dissipated, he said.

“The fast-growing property market in Scotland has been one of the surprises of the pandemic with few predicting that it would be so buoyant over such a prolonged period,” said Mr Alexander.

“The LBTT threshold extension undoubtedly contributed to this boom along with buyers changed priorities and shifting housing demands initiated by reactions to the lockdown.”

Paul Denton, chief executive of Scottish Building Society, said young buyers could be worst hit if house price rises continue to outstrip income.

Paul Denton SBS

Paul Denton: young could miss out

Mr Denton said: “The increase is driven by pent-up demand caused by lockdown earlier last year. It does also highlight systemic changes in the market which could have consequences on the ability of a generation of young people to buy their own homes.

“Remote working, lockdown and the end to the daily commute has seen people re-evaluate their priorities on the type and size of house they and their family need. People are looking for larger homes outside the city, with gardens and home offices.

“However, before Covid-19, Scotland was suffering a significant lack of housing stock – with 80,000 fewer homes built each year since the last financial crash.

“Now the unpredictable consequences of Covid-19 could exacerbate that shortage and increase the generational inequality gap.”

Mr Denton added: “There is no magic bullet to solving this problem, but it does need to be recognised as an urgent priority for our industry and governments.”

London hits half million mark

London house prices jumped at the end of last year, with average values breaking the £500,000 threshold for the first time.

The annual price rise of 9.7% took the average property value in the city to £513,997.

Experts said the rise was driven by the return of international buyers racing to beat the additional tax due to be introduced this year. 

It was also boosted by house hunters aiming to complete transactions before the stamp duty holiday deadline in March. 

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