As I explain in our latest Mystic Monday vlog (part of our 31 Days of Rettie campaign), we correctly predicted at the end of 2024 that 2025 would be a year when the Scottish housing market ticked along, with modest house price growth (likely around 3% at the year-end) and modest sales growth, which looks like being just a little ahead of forecast at 5%. Private rent rises have also moderated and that sector appears to be operating now in a more certain environment with the recent passing of the Housing (Scotland) Bill. New build activity has also modestly increased, but this sector continues to face significant viability issues and access to effective land, meaning that delivery is far short of where it was pre-pandemic.
So how is 2026 looking?
Modest Price Growth Again Expected
We are forecasting average house price growth in the range of around 3-4% next year, i.e. around similar levels to recent years. This will probably be only slightly ahead of general consumer price inflation and reflects a stable market where demand has been ticking up slightly (as interest rates and mortgage rates drop back a little), but bank lending remains sensible and steady, and affordability keeps a lid on the rate of price growth.
Rents are also expected to grow modestly (perhaps around 4-5% on average) as landlords attempt to keep up with general inflation and ensure that their properties are marked to market values before rent controls are possibly introduced in their areas in 2027. Affordability again keeps a cap on rent rises as rental supply begins to recover again.
Modest Transaction Growth Also Expected
House sales in Scotland have been steady over the last 12 years, hitting around 100,000 transactions a year, which again reflects a largely stable market, although far off the pre-2008 crash highs of over 150,000.
With steady economic and wage growth being forecast by the Bank of England and other major forecasters, it seems clear that this will also feed through into our pro-cyclical housing market and therefore we are forecasting growth of 2-5% in sales over the next year, with another 5%+ unlikely after the mini jump of 2025.
The Scottish Budget Will Not Have Nasty Surprises
We are a bit less certain on this one, but as we explained in our recent blog on the UK Budget, we do not think there will be any significant property tax changes in Scotland in the January Budget, but there may be a temptation to raise property income tax rates as they did in the UK Budget (a 2% increase on basic and upper tax rates).
However, the overall impact of the UK various tax and spending measures was positive for the Scottish Government in giving them a small increase in funding and therefore there is less pressure to have to increase taxes (or cut spending) to run the balanced budget that it is required to. It is also a Holyrood election year.
A mansion tax seems unlikely (at least in this Budget) given the measures that would be required to introduce it (including revaluations of higher Council Tax bands).
Given some of the upheaval in the recent past, we will settle for a safe and boring Scottish budget.
Our forecasts for the next few years are as below. The further out you go, the less reliable they will obviously be.
The Fire Horse may have other ideas though.
Interestingly, in the last Fire Horse year (1966), England won the World Cup. Just saying…