(This month we try to read the runes and to discern whether those are lights at the end of the tunnel or an oncoming freight train)

With autumn now upon us, the feeling of there being change in the air is palpable. But as the season changes and the colours mellow we detect mixed messaging in the media as to where the economy and the housing market in particular are headed. Add to the seasonal mix the imminent first budget of a new Labour Government elected on a promise of change, and it feels rather as if the Scottish housing market itself might be entering a new season.

Positive domestic and international economic factors typified by a half percent cut in the Fed rate in the U.S are tempered by increasing geo-political tensions especially in the Middle East. It’s a messy, confusing and indeed a worrying picture in varying degrees. So what is the outlook for the local property market in particular for the remainder of this year and into 2025? Is the change we sense coming a change for better or for worse?

Well to do that in a logical manner why not let us look at a number of the key factors at play and try to analyse how these might impact the future. Let’s start on an optimistic note and examine the positive factors first.

Positive Factors

House Price Growth at Two-Year High

Regional house price indices show that for the third quarter of the year (the three months to September) most regions across the UK saw a pickup in annual house price growth. Scotland saw a noticeable acceleration in annual growth of 4.3%. The cost of a typical home in the UK now stands at £266,094. Here in Dunfermline and West Fife it’s £204,000 which, as a point of reference, is some £5,000 above the Scottish average. These rising house prices indicate that demand is strong fuelled by factors such as improved wage growth, constrained housing supply both in the private and social housing sectors and finally by pent-up demand. With those average wage increases now finally outpacing inflation, homebuyers have found they have slightly more purchasing power which has in turn supported price growth.

Mortgage Rate Reductions

Most lenders have reduced mortgage interest rates in recent months with both two and five year fixed rates at close to their lowest levels since the disastrous Liz Truss mini-budget. Some lenders such as Nationwide have also increased the salary multiplier formula they use allowing buyers to now borrow more than was the case. Whether rightly or wrongly the Nationwide will now lend up to six times the annual salary of some borrowers. As a result affordability has improved a little making it easier for people to secure mortgages and buy homes. If as expected another cut to the base rate materializes in November when the Bank Of England Monetary Committee next meets, this will likely further stimulate the market further via reduced borrowing rates assuming lenders pass on the base rate cut to borrowers.

Wage Growth Exceeding Inflation

Real wage growth as we have already suggested is now outstripping inflation. This has boosted consumer confidence and disposable incomes. Based upon historical evidence this we predict will translate to increased demand, further supporting house prices and market activity.

New Labour Government’s Focus on Economic Growth

Labour came to power in July promising change and committing to growing the economy. The Labour government’s potential economic growth measures such as GB Power should improve job security and market confidence. If they implement policies that genuinely help boost productivity, employment, and overall economic growth, the housing market will most certainly benefit from increased buyer confidence and stability.

OK, so far so good but what is the flip side of the coin? If the glass is half full it’s half empty too right? What are the negatives at play which could see a bumpier ride ahead?

Risks and Uncertainties

Potential Tax Increases

When Rachel Reeves takes to the dispatch box at the end of October to deliver her first budget what might that mean for the property market? In their manifesto ahead of the general election the Government ruled out increases to income tax and NI so tied their hands somewhat. Having identified what they say is a £20 billion + black hole in the public finances it seems inevitable that some taxes will rise and some budgets (winter fuel allowances) will be cut. Increased taxes – especially those related to property, capital gains, or wealth -could potentially cool the housing market. Higher taxes along with changes to the rental sector could discourage investment in property and increase the cost of homeownership, particularly for higher-end homes or second properties.

Global Geopolitical Tensions

Rising global tensions especially in the Middle East, could create even greater global economic volatility. Along with the ongoing conflict in the Ukraine, a wider Middle Eastern war would very likely see an increase in oil prices and supply chain disruptions in the Suez Canal which would possibly reintroduce inflationary pressures, offsetting any wage growth advantages.

Broader Economic Sentiment

Whilst wage growth is now outpacing inflation, price increases are still an issue in many sectors. The cost-of-living crisis has not yet been laid to rest. Should inflation spike again due to the aforementioned geopolitical factors, consumer confidence would almost certainly dip with a consequent reduction in housing demand. Additionally, if interest rates were not to fall as expected, the prize of cheaper mortgages would evaporate negatively impacting the market.

So then on balance where do we see things going? Is that glass half full or half empty? Is now a good time to be contemplating a move?

Outlook

Well in our opinion the good news is that we are firmly of the belief that the housing market is in a positive and encouraging space and headed to a better space still. There is without doubt light at the end of the property tunnel but as we have outlined it’s not without risk. If domestic factors such as wage growth, interest rate cuts, and economic support from the new government play out as expected, the Scottish housing market should continue to perform well. However, rising global risks, potential tax hikes, and some inflationary concerns could bring about unexpected challenges and introduce a few bumps in the road. We also have the prospect of the Holyrood elections in May 2026 which, as we move through next year, will become a factor and exert influence.

By means of these monthly leader articles we’re committed to keeping you updated and abreast of all developments, domestic and global, which impact upon the property market so please keep reading and please, share your views with us. Whether you agree or vehemently disagree we would love to hear from you. Email us at michael@maloco.co.uk