PRIME SCOTTISH PRICES FLAT IN 2015Prime property prices in Scotland were broadly unchanged over the course of the year, with higher purchase taxes acting as a brake on the market.

Key facts for Q4 2015Scottish country house prices rose by 0.1% in 2015

Prime prices increased by 0.5% between October and December, driven by the sub-£1 million market

Properties in the £500,000 to £1 million price bracket increased in value by an average of 1%

The top end of the market in Scotland is still adjusting to the introduction of LBTT

RESIDENTIAL RESEARCH

PRIME SCOTTISH PROPERTY INDEX

FIGURE 2

Purchase taxes UK and Scotland proposed and actual purchase taxes (000s)

OLIVER KNIGHT Senior Analyst

“ The year has effectively been bookended by changes to purchase taxes in Scotland.”

Follow Oliver at @oliverknightkf

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

Scottish country house prices have risen by 0.1% over the last 12 months, compared with a 2.1% rise in 2014, according to the latest figures from Knight Frank’s prime index.

The year has effectively been bookended by changes to purchase taxes in Scotland, with the latest proposal put forward in December’s Scottish Budget.

Finance Secretary John Swinney has proposed an additional 3% rate of Land and Buildings Transaction Tax (LBTT) to apply to the purchase of additional properties, such as buy-to-let and second homes from April 2016, although much of the detail remains undefined.

The top end of the market in Scotland is still adjusting to the introduction of LBTT in April, with purchase taxes in the prime market as much as 90% higher than under the previous stamp duty system.

Ran Morgan, Head of Scotland Residential Sales, said: “The principal driver of the prime market in Scotland in 2015 has been the introduction of LBTT in April.

“Sales volumes spiked early in the year ahead of its introduction with buyer activity in more rural locations subdued thereafter.”

A closer look at different price bands within the prime market shows varying levels of performance.

A 0.5% rise in average prices in the last three months has been driven by the sub-£1 million market with properties valued between £500,000 and £1 million increasing in price by an average of 1%. Above this level, prices were unchanged compared to the previous quarter.

Looking to 2016, activity in the prime market is expected to remain subdued, although the proposed changes to LBTT could result in a short-term boost in activity.

The Holyrood elections scheduled for next May and ongoing discussions surrounding council tax reform also have the potential to cause uncertainty in the market.

Million-pound plus marketThere were 24 sales at £1 million and above in Scotland registered between July and September 2015, compared with 42 in the same period last year, representing a 43% annual drop.

£2,3

50,0

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£700

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£550

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£400

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£250

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SDLT

LBTT

PROPOSED ADDITIONAL LBTT

PROPOSED ADDITIONAL SDLT

SDLT

LBTT

PROPOSED ADDITIONAL LBTT

PROPOSED ADDITIONAL SDLT

£0

£50

£100

£150

£200

£250

£300

£350

£0

£50,000

£100,000

£150,000

£200,000

£250,000

£300,000

£350,000

Tax

paya

ble

(000

s)

House price

Source: Knight Frank Research

FIGURE 1

Prime Scotland: annual and quarterly price growth

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Sep

-15

Dec

-15

Jun-

15M

ar-1

5D

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4S

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4Ju

n-14

Mar

-14

Dec

-13

Sep

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Mar

-12

Dec

-11

Sep

-11

Jun-

11

ANNUALQUARTERLY

Source: Knight Frank Research

continued overleaf...

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UK Prime Country House Index Q3 2015

Prime country house prices rose by 0.7% between July and September, continuing the modest upward trend of growth that started in early 2013. Prices have shifted upwards now for eleven consecutive quarters.

Annual growth also rose slightly to 2.7% on average, up from 2.3% in Q2 but down from a recent high of 5.2% in 2014.

The market continues to feel the impact of the increased cost of stamp duty, following the Autumn Statement in December 2014. This continues to weigh on both price growth and activity at the top end of the market.

In fact, the latest figures from the Land Registry show that between January and July there have been 35% fewer sales with a value above £1.5m outside of London compared to the same period last year.

The prime market below £1.5m has been less affected by these tax changes.

Illustrating this fact, prices for homes in the prime market valued under £1.5m have risen by nearly 4% annually over the year to September. In comparison, over the same time properties priced above £1.5m, the point at which the 12% rate of SDLT kicks in, have risen by 2%.

Under £1.5m, price growth has generally been underpinned by demand for homes in urban centres. Price growth in town and city markets including Bristol, Bath and Oxford for example, where buyers continue to be attracted by good schooling, amenities and transport links, has outperformed the wider prime market.

There remains a significant price differential between property prices in the prime country market and in London, while anecdotal evidence from agents suggests that there is pent up demand from buyers in the Home Counties and the South West. This could help underpin prices and an increase in activity levels across the market as the year progresses.

The average prime country house price is still 14% below its 2007 peak. In contrast, prime prices in London are, on average, 34% higher than their previous peak values. The rise in London prices in the last few years means that buyers looking to swap the city for the country are able to get a lot more property for their money, with such buyers able to take advantage of the relative “discount” which currently exists.

BUYERS CONTINUE TO ABSORB STAMP DUTY CHANGEPrime country house prices continue to grow, but tax policy is starting to have an effect at the top end of the market.

Key headlines from Q3 2015Prime country house prices increased by 0.7% in the third quarter of 2015

Annual growth stands at 2.7%

December’s stamp duty change continues to have an effect on the market above £1.5m

The price differential between the prime London and the prime country markets remains significant

FIGURE 1

Prime country price growth Annual and quarterly change in prime country property values

FIGURE 2

Prime London v Prime Country price differential Nominal price change since Q1 2007

Source: Knight Frank Research Source: Knight Frank Research

201520142014201220112010

-6%

-4%

-2%

0%

2%

4%

6%

8% ANNUAL % CHANGEQUARTERLY % CHANGE PRIME COUNTRY HOUSE

PRIME CENTRAL LONDON

70

90

110

130

150

170

‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15

RESIDENTIAL RESEARCH

PRIME COUNTRY HOUSE INDEX

OLIVER KNIGHT Residential Research

“ The country house market continues to feel the impact of the increased cost of stamp duty. This continues to weigh on both price growth and activity at the top end of the market.”

Follow Oliver at @oliverknightkf

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

PRIME SCOTTISH PROPERTY INDEX Q4 2015

BUYERS LOOK TO COMPLETE DEALS AHEAD OF TAX CHANGETax policy remains one of the main drivers of the prime property market in Edinburgh. Oliver Knight examines the latest figures.

Prime property prices in Edinburgh rose by 1.2% over the first three months of 2015, after a 0.5% increase in the preceding quarter, as buyers looked to complete deals ahead of the switch to the new Land and Building Transaction Tax (LBTT) in April.

On an annual basis prices have risen by 4.1%.

As was the case for much of last year, tax policy continued to play a defining role in the city’s prime property market during the first quarter. The prospect of higher taxation, through the introduction of LBTT from 1 April 2015, led to a rise in buyer interest, which in turn has boosted prices being achieved.

When LBTT replaces stamp duty, those buying homes worth less than £333,000 will pay less tax, however for homes above this threshold the up-front cost of moving will increase.

The number of sales completed by Knight Frank between January and March was 47% higher than Q1 2014 and 66% higher than Q1 2013.

We expect that following the introduction of LBTT in April there may be a period of adjustment at the top-end of the market as individuals factor in the increased cost of moving.

Forecasts from the Office of Budget Responsibility (OBR) appear to confirm this, with the fiscal watchdog recently revising its forecasts for future stamp duty and LBTT tax revenues. The OBR said that the bringing forward of some higher-priced transactions in Scotland before April will increase UK stamp duty receipts by £11 million in 2014-15. The OBR subsequently reduced its forecast for LBTT receipts in 2015-16 by £20 million.

Edward Douglas-Home, Head of Edinburgh City Sales at Knight Frank, said: “Buyers have been taking advantage of the short window when purchase costs are lower.

“From April this year, when the new LBTT rules come into force, a buyer of a property valued at £1m will pay nearly £35,000 more in purchase taxes. However, even with the new higher

Results for Q1 2015Property prices in Edinburgh rose by 1.2% between January and March 2015

Annual growth now stands at 4.1%

The number of Londoners looking to buy property in Edinburgh rose by 97% year-on-year

From April 1st, under the new LBTT regime, a buyer of a £1m property will pay an extra £35,000 in purchase taxes

FIGURE 1

Price growth Edinburgh quarterly and annual price change

Source: Knight Frank Residential Research Source: Knight Frank Residential Research

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Q4-14

Q1-15

Q3-14

Q2-14

Q1-14

Q4-13

Q3-13

0.0%

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2.0%

3.0%

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6.0%ANNUALQUARTERLY

over£2m

£1.5mto £2m

£1mto £1.5m

£500kto £1m

< £500k

3.5%3.9%3.8%

5.3%

1.5%1.2%

1.4%

0.9%

0.0%

2.7%

ANNUALQUARTERLY

FIGURE 2

Edinburgh: Annual and quarterly price change by price bracket Q1 2015

RESIDENTIAL RESEARCH

EDINBURGH CITY INDEX

OLIVER KNIGHT Residential Research

“ The prospect of higher taxation resulted in an increase in buyer activity in the early part of 2015, as buyers and vendors looked to complete deals ahead of the introduction of LBTT from 1 April 2015.”

Follow Oliver at @oliverknightkf

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

continued overleaf...

Edinburgh City Index Q1 2015

UK Prime Country Review - Winter 2015

RISE OF URBAN PRIME PROPERTY TAX UPDATEMARKET UPDATE

PRIMECOUNTRYREVIEW UK PRIME COUNTRY HOUSE MARKET WINTER 2015

RESIDENTIAL RESEARCH

Important Notice © Knight Frank LLP 2015 – This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

For the latest news, views and analysison the world of prime property, visit

KnightFrankblog.com/global-briefing

GLOBAL BRIEFING

RESIDENTIAL RESEARCH

Liam BaileyGlobal Head of Research +44 20 7861 5133liam.bailey@knightfrank.com

Oliver KnightSenior Analyst+44 20 7861 5134 oliver.knight@knightfrank.com

SCOTLAND SALES

Ran MorganHead of Scottish Residential Sales+44 13 1222 9600 ran.morgan@knightfrank.com

PRESS OFFICE

Jamie Obertelli+44 20 7861 1104 jamie.obertelli@knightfrank.com

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Issues and insights Threats and opportunities for landowners

Rural property markets Our latest research and analysis

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The Rural Report Autumn 2015

The Scottish Government has proposed an increase in LBTT for some transactions. Under the proposals, an additional 3% rate will apply to the purchase of additional properties, such as buy-to-let and second homes.

The new rate is set to come into effect from 1 April 2016.

The proposed rates will be levied on the total price of the property for all relevant transactions above £40,000 and will be in addition to the current LBTT rates.

PROPOSED LBTT RISE FOR ADDITIONAL HOMES

This would replicate the UK Government policy for SDLT announced at the Autumn Statement 2015. A consultation on the proposals is expected to be launched in the coming weeks.

The Scottish Government has forecast that it will raise overall LBTT receipts in 2016-17 by between £17 million and £29 million, rising to a possible £66 million by 2020-21.

Knight Frank Prime Scottish Property Index Q4 2015

Cottage Farmhouse Small country house

Large country house

Average

3 month 0.0% 1.3% 0.4% 0.0% 0.5%

6 month 0.0% 0.8% -0.2% -1.2% -0.2%

1 year 0.0% 1.0% 0.2% -0.7% 0.1%

Source: Knight Frank Research

The data, from the Registers of Scotland, showed that sales have mostly been focussed on the core locations of Edinburgh, Aberdeen and Glasgow.

Edinburgh accounted for 33% of all million-pound plus sales in Scotland last quarter.