Scottish house prices will rise by around 1.5% next year, upmarket estate agent Rettie & Co forecasts.

Looking back over this year, Rettie & Co director of strategy and research John Boyle said: “Transactions have remained relatively robust this year, although they look like ending close to 10% [down] on 2022 levels. House prices have remained relatively robust in 2023, staying fairly flat across Scotland as a whole.”

He added: “The market continues to adjust to a new environment including higher interest rates. Demand has dropped back, but not excessively, and sales activity should recover in 2024, giving more buyers and sellers confidence to enter the market.”

The Bank of England has raised UK base rates from a record low of 0.1% in December 2021 to 5.25%.

Rettie & Co forecasts overall residential property transaction activity in Scotland will increase by around 4.3% next year.

In the private rental sector, Rettie & Co sees double-digit-percentage increases in average rents on new listings combined with a continuing fall in supply levels, “subject to forthcoming government legislation”.

Mr Boyle noted that, in the private rental sector, “demand has not dampened in the way it has in the sales market”.

Rettie & Co noted: “Figures for October 2023 from Registers of Scotland indicate the average Scottish house price was down 1.5% against the same month last year. However, the average house price between January to October 2023 is up 1% when compared to the first 10 months of 2022.”

Analysing the Scottish housing market’s performance this year, Rettie & Co said: “The main reason for the reduced sales market has been the sharp increase in mortgage rates. In early 2022, the average mortgage on a new purchase in Scotland was under £800 per calendar month but rose to over £1,200 per calendar month by mid-2023.

“Tighter supply has supported house prices, particularly in more desirable locations and for family-style housing. However, some markets have been hit harder. For example the urban flatted market has been impacted by rising mortgage rates and the related affordability pressures on younger households, who tend to have less equity reserves.”

Rettie & Co noted the new build market “has been more severely impacted, with sales down 15% in the first 10 months of 2023”.

It said: “In addition to a reduction in demand, the new-build sector has also faced supply-side problems with rising construction costs, and labour market and supply-chain pressures. This has impacted on the viability of developments in many areas, slowing delivery.”

Mr Boyle said: “As we approach the end of the year, we are seeing the market move into its usual seasonal slowdown. At the same time, we are also seeing positive signs that we can emerge from a challenging environment over the next year.”

He added: “The Royal Institution of Chartered Surveyors (RICS) is now predicting future sales expectations turning positive in Scotland after a period of negative market sentiment, and there are positive signs with mortgage lending, with two-year fixed rates now back below 5%.

“These indicators point towards stabilising and improving market conditions as we enter 2024, although the challenges of above-target inflation, relatively high interest rates, and a cost of living crisis remain.”