The latest LSL/Acadametrics House Price Index has reported an increase of £1,028, or 0.7% in the average price paid for a house in Scotland in January, compared to December.
The average house price north of the border is now £141,866.
This increase in the monthly rate reverses the trend of declining prices recorded over the previous six months, but is at odds with the figures produced by Registers of Scotland (RoS). These show a substantial fall of 6.0% in prices during the month.
Dr Peter Williams, housing market specialist and Chairman of Acadametrics, explains the discrepancy: “Firstly, our average house prices are smoothed over three months to remove some of the spikes that occur in the recording of such averages. In this case, RoS had recorded a 4.5% increase in house prices in December, which made the fall of 6.0% in January look more serious than perhaps was merited, with a net fall of only 1.5% over the two months.
“Secondly we seasonally adjust our figures, whereas RoS do not. Typically, house prices in Scotland fall by 2.75% in January compared to December, and we therefore make an adjustment for this seasonal factor. This allows us to highlight the underlying trend in the price movement, disregarding what we consider to be standard price changes for the time of year. It can therefore be seen that the net fall of 1.5% over December and January is actually a smaller fall than is usually observed in Scotland in January.
“Finally, we mix adjust our prices to remove the possibility that the sale of more detached homes on a percentage basis in one month compared to another will distort the average price for that particular month. As a result of these refinements we conclude that the underlying trend in house prices was an increase of 0.7% over the month, compared to the 6.0% fall recorded by RoS.”
Richard Sexton, director of e.surv chartered surveyors, part of LSL, said: “Six consecutive months of falling house prices in the second half of 2012 threatened to drag the Scottish housing market back into the depths it fell to after the 2008 financial crisis. Prices have fallen over £4,000 in the last year – and by much more if you take inflation into account. Thankfully, a £1,000 rise in prices during January has put the brakes on the slide, at least for now.
“The crux of the problem is weak mortgage lending. Demand for mortgages is falling, and the supply of them remains painfully tight. Personal finances have been eroded by inflation and savings are crumbling away like weathered rock. Second steppers in particular are content to sit tight and wait until the market begins to recover. And Scotland is more exposed to public sector cuts than England and Wales, which is stymieing demand in comparison to south of the border.
“On top of that, criteria on mortgages are strict, which is slamming the door on lots of would-be buyers. Although the Funding for Lending scheme has helped reduce rates and encouraged banks to introduce a wider range of mortgages, borrowers still have to cross a high threshold in order to access them. This is proving difficult while their personal finances are being so savagely attacked.
“There are bright spots amid the gloom. First-time buyers – historically the fulcrum of a healthy housing market – are finding it easier to get mortgages thanks to a wider choice of products: first-time buyer numbers reached their biggest annual figure in four years over the last 12 months. If that improvement can be sustained throughout 2013 the housing market should begin to gradually recover. And despite the economic travails, underlying demand remains relatively strong, which should help support house prices in the long term.”