TWO-SPEED MARKET EMERGING IN EDINBURGH Price growth is increasingly dependant on property value in Edinburgh as prime buyers adjust to higher purchase costs

Prime property prices in Edinburgh rose by just 0.4% between July and September, while the rate of annual price growth in the city slowed to 2.5%, its lowest level since September 2013.

The summer months are typically among the quietest of the year in terms of activity, however this trend has been amplified further this year following the introduction in April of the Land and Buildings Transaction Tax (LBTT).

The new levy – a replacement for Stamp Duty Land Tax – means that those purchasing property with a value above £333,000 now pay more in purchase taxes. This is especially the case in the prime market where costs are as much as 90% higher than under the previous stamp duty system.

A £900,000 property now attracts a LBTT bill of £66,350. Previously, buyers would have paid £35,000 in stamp duty.

Against this backdrop, a two-speed market has emerged in the city.

Price growth has been driven primarily by the sub-£500,000 market, which has proven to be more resilient to the recent tax change. As a result, price growth at this

level has been stronger than the average for prime Edinburgh properties, as figure 2 shows.

The average value of homes below £500,000 has risen by 1.1% over the quarter and by 4.5% on an annual basis over the year to September. In comparison, properties valued above £500,000 rose by just 0.2% in Q3 and by 2% annually.

Edward Douglas-Home, Head of Edinburgh City Sales, said: “LBTT has undoubtedly had a cooling effect on the prime market in Edinburgh. This has been most acutely felt in the market for properties valued at £750,000 and above, where in some cases purchase costs have nearly doubled.

“The sub-£500,000 market continues to function with a healthy level of interest, buoyed by continued low interest rates and ongoing economic growth across the UK.”

Prime sales in Edinburgh are likely to pick up over the traditionally busier autumn months and as the market and buyers slowly start to absorb the higher rates of LBTT. However, policymakers will be watching carefully for evidence of a longer term reduction in activity which would weigh on tax receipts.

There is further analysis of the latest LBTT receipts on page 2.

Results for Q3 2015Prime property prices in Edinburgh rose by 0.4% between July and September

On an annual basis prices are 2.5% higher

LBTT continues to weigh on prime market activity

Properties valued above £500,000 rose by 0.2% in Q3 and by 2% annually

Source: Knight Frank Research

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FIGURE 2

But price growth is dependant on property value Annual, six-monthly and quarterly price growth in Edinburgh, by price band

RESIDENTIAL RESEARCH

EDINBURGH CITY INDEX

OLIVER KNIGHT Residential Research

“ As a result of the introduction of LBTT in April we are seeing a two-speed market emerge in the city.”

Follow Oliver at @oliverknightkf

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

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Source: Knight Frank Research

FIGURE 1

Edinburgh price growth moderates Annual and quarterly price growth

RECENT MARKET-LEADING RESEARCH PUBLICATIONS

Knight Frank Research Reports are available at KnightFrank.com/Research

EDINBURGH CITY INDEX Q3 2015

“ The market below £500,000 continues to function with a healthy level of interest, buoyed by continued low interest rates and ongoing economic growth.”

Knight Frank Edinburgh City Price Growth, Q3 2015

Edinburgh New Town/ West End

North South West

3 month 0.4% 0.5% 0.7% 0.2% 0.3%6 month 0.8% 1.0% 1.8% 0.4% 0.4%1 year 2.5% 2.4% 3.6% 2.6% 1.2%3 years 9.9% 13.1% 7.5% 10.7% 5.3%

Source: Knight Frank Residential Research

Prime Country Review Summer 2015

£1M+ MARKET NATIONAL PARK PREMIUMPOST-ELECTION MARKET UPDATE

PRIMECOUNTRYREVIEW UK PRIME COUNTRY HOUSE MARKET SUMMER 2015

RESIDENTIAL RESEARCH

UK Residential Market Update Sept 2015

UK housing market and economic overview

RESIDENTIAL RESEARCH

UK RESIDENTIAL MARKET UPDATE

“ The dynamics of the residential market in one town may differ from another town just 20 miles down the road, not to mention the dynamics implied by national average data.”Follow Gráinne at @ggilmorekf

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

GRÁINNE GILMORE Head of UK Residential Research

MIXED MESSAGES ON THE MARKET A divergence in house price indices are giving a mixed picture of the market, yet there is broad agreement that stock levels dipped over the summer. In prime central London, prices continued to ease in August although there is a significant divergence in price performance between local markets.

Key facts September 2015UK house prices rose by 0.3% in August, and are up 3.2% year-on-year

Prime central London prices are up 1.7% on the year

Prime country home prices climbed 2.30% to the end of Q2, with outperformance in urban markets such as Winchester, which has seen growth of 6.3%

Households expect more price growth, although market remains regionalised, according to latest House Price Sentiment Index

House price indices Annual % change, 3-month moving average

Source: Knight Frank Research / Macrobond

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Source: Knight Frank Research / Macrobond

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Source: Knight Frank Research / Macrobond

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House price indices, which track the value of homes across the country, using a variety of data and methodologies, have been painting a slightly different picture of the market in recent months as the chart above shows.

While Halifax shows an uplift in prices over the summer, this is not reflected so emphatically in Nationwide data, which, like Halifax, monitors mortgage approval data. The last significant divergence between these two ‘similar’ indices in

the 1990s was explained by the Bank of England as probably occurring because of the different ways these indices are “mix adjusted” to take account of the different characteristics of houses bought and sold in any one month. The ONS, which looks at a larger selection of mortgage data also indicates a continued slowing in price growth to date this year, as does the Land Registry, which reflects all sales completed in England and Wales.

Over the long run, it is possible to see that the indices broadly move together, but the recent divergence is attracting attention as the market heads into the busier Autumn period. The question for all considering a sale or a purchase is “is it a sellers or a buyers market?”. The answer is not clear-cut.

While UK average house prices are a useful broad-brush indication of how the market is performing, they do not accurately reflect local markets. The dynamics of the residential market in one town may differ from another town just 10 or 20 miles down the road, not to mention the dynamics implied by national average data.

The Wealth Report 2015

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Issues and insights Threats and opportunities for landowners

Rural property markets Our latest research and analysis

Working for you Adding value for our clients

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The Rural Report Autumn 2015

It has been just over five months since LBTT replaced stamp duty in Scotland.

Official statistics from Revenue Scotland, the administrative body set up to collect returns from the tax, shows that between April and August LBTT receipts have so far totalled nearly £78m. In August, Revenue Scotland collected £21.4m, up from £7m in April. Tax returns have risen every month since its introduction, as shown in figure 3.

While it is still too early to draw any firm conclusions, the initial indications are that revenues are unlikely to raise the £235m originally forecast over the 2015/16 tax year.

One reason for this is because a number of buyers – especially in the prime market – brought forward transactions ahead of the introduction of the levy in order to benefit from lower stamp duty rates.

Our research shows that in the first three months of 2015 there were 48% more properties valued at above £500,000 for sale than over the same

period the previous year. The number of £1m+ sales completed in Scotland between January and March was also considerably higher.

The long-term concern for policymakers is that recent changes could weigh on activity towards the top of the market. Any slowdown in such sales has the potential to have an impact on future tax revenues.

LBTT – the story so far...

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.

RESIDENTIAL RESEARCH

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

Oliver KnightResidential Research+44 20 7861 5134 oliver.knight@knightfrank.com

EDINBURGH SALES

Edward Douglas-Home +44 13 1222 9606 edward.douglas-home@knightfrank.com

PRESS OFFICE

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

Source: Revenue Scotland

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FIGURE 3

Monthly residential LBTT tax revenues