Insight: Why Scotland's housing market is in a precarious position

From rising costs and rates to a deepening supply crisis and ongoing economic uncertainty, the Scottish housing market is in a precarious position, with ordinary households increasingly feeling the punch. Since the start of the war between the US and Iran, mortgage rates have jumped sharply from a three-year low, with the average two-year 85 per cent loan to value (LTV) rate rising from 4.4 per cent to 5.0 per cent in the last quarter alone.

The average mortgage payment, based on an average two-year fixed rate mortgage, is now £1,122 per calendar month, and around £100 pcm above pre-conflict levels. Academics, policy experts, mortgage specialists, and housebuilding firms are in agreement that the current situation is volatile, with certain flashpoint areas feeling the pain more than most. Here, Scotland on Sunday looks at the key factors behind the market pressures, where the issues are most acute, and what could be done to help.

The most recent Scottish government data shows that housebuilding activity remains on the wane, with 2,123 fewer homes completed in the 12 months to the end of June 2026 compared to the previous year, a drop of 11 per cent. That marked the third successive annual fall in completions, and the lowest level since 2015. At the same time, there were 272 fewer new housing starts - down two per cent - putting them at their lowest level in 13 years.

Elsewhere, the most recent annual property market report by Registers of Scotland found that while there were 10,290 new build sales in 2025/26, that was down 20 per cent compared to three years previously. Jane Wood, chief executive of Homes for Scotland, said the fact that an insufficient number of homes were being built to meet the needs and aspirations of Scots was the “fundamental challenge” facing the housing market. “A sustained shortage of homes across all tenures restricts choice, places pressure on affordability across both the ownership and rental markets and makes it harder for businesses to attract and retain the people they need,” she said.

“While the nature of these pressures varies across Scotland, the underlying need for an increased supply of homes of all tenures is a national issue.” Mortgage expert Graeme Nichols, managing director of Glasgow-based West End Mortgages said the lack of new properties entering the market added to the challenges where the available housing stock is limited, such as the ever popular west end of Glasgow. “With only a handful of new-build flat developments released each year, buyers can face increased competition and reduced choice,” he said.

“Demand out strips supply.” Ken Gibb, professor in housing economics at the University of Glasgow, said there was also a need to bring more existing housing stock, such as empty homes, onto the market, and address issues of under-occupation in the existing stock. “The census showed there were more than 50,000 homeowners in Edinburgh with a spare bedroom,” he added. “If only a fifth have two or more spare rooms that would be 10,000 homes in the capital alone.”

One of the crunch factors in the market is mortgage affordability. The Scottish government’s latest Scottish housing market review shows that as of the last quarter in 2025, the share of home movers’ income swallowed up by capital and interest payments stood at 19.1 per cent - the highest level since the same period in 2008. Among first-time buyers, the figure is around 19.8 per cent. To make monthly repayments more manageable, an increasing share of borrowers have responded by taking out longer mortgages, but even so, the pressure facing households already contending with the ongoing cost of living crisis remains significant.

Prof Gibb pointed out that the average loan to value in Scotland stands at nearly 84 per cent, with higher risk lending rising to its highest proportion of all mortgage lending - some 9.1 per cent - since the 2008 financial crisis. He explained: “The finance issue for first time buyers is not just the loan to value ratio and the deposit, important as they are to secure a mortgage, but also the multiple of income required for a loan when house price to income ratios remain large, even when prices are not accelerating.”

Read more: ‘Critical point’ for housing industry amid fall in new home registrations Mr Nichols said: “Affordability remains one of the biggest challenges. Slower house price growth may ease some pressure, but we are still seeing prices remaining fairly high relative to earnings, while mortgage rates continue to impact what buyers can borrow and afford. “First-time buyers are often particularly stretched, as they are often trying to save a deposit while paying high rents.

Existing homeowners, many who enjoyed record low rates, are now coming to the end of their fixed-rate deals, and are having to budget carefully to meet their new repayments.” The changing face of Scotland and its people is irrevocably tied to the pressures in the housing market, and underlines the need for wider political solutions beyond eye-catching initiatives such as helping first-time buyers secure deposits. “House prices and changes reflect the balance of supply and demand in regional and local housing markets, but that balance reflects not just local factors, but how local, Scottish, UK and international influences become locally grounded, and they reflect market and policy influences,” explained Duncan Maclennan, emeritus professor of urban economics at the University of Glasgow.

“The key demand side factors influencing activity and price levels in the market are demographic change, including changing age structures, as well as net migration, income growth, household wealth and taxation arrangements, as well as expectations about the movement of prices.” Prof Gibb said any analysis of the market had to take into account “wider questions” about why people are not moving home as readily as they have in the past. “There are less desirable homes to move to certainly but also wider economic and social drivers, and demography, such as adult children staying in the parental home longer,” he said.

In Aberdeen, a city which, as recently as 2012, could boast of having the highest concentration of millionaires in the UK, the decline is palpable. Together with Orkney, Aberdeen City and Aberdeenshire Councils are the local authorities to see house prices fall. There has been a three year decline of 12 per cent in the median house price; over the course of the past decade, the fall is 29 per cent. By contrast, the median prices in Glasgow shot up 57 per cent over the same period.

Some agents in the city have expressed optimism that the UK government’s approval of the Jackdaw North Sea gas field will bolster market confidence. But many experts believe the impact will be limited. “Aberdeen has been in quite a long process of adjustment to the decline of the oil industry, and I don’t think Jackdaw will make much difference to that,” reasoned Glen Bramley, professor of urban studies at Heriot-Watt University. Susan Murray, director of the David Hume Institute, told Scotland on Sunday that the “stark divergence” in regional markets, exemplified by Aberdeen’s “unique decline” over the past decade in median prices showed that “national blanket measures fail to capture regional realities.”

Made in Scotland and sent to your inbox - get our daily newsletter She said: “While recent clarity around project approvals like Jackdaw offers localised industrial re-assurance, a long-term fix for the north east requires aligning housing, net-zero transitions, and economic retention, rather than relying on cyclical energy announcements.” Mr Nichols, meanwhile, said the Jackdaw announcement had the potential to attract investment and support job creation.

But he too stressed it was not a smoking gun. “Its impact will take time to be felt, and addressing the wider trend will require more than a single project,” he said. In Edinburgh and the Lothians, the situation is nowhere near as critical, but even so, there are concerning signs. The latest Edinburgh Solicitors' Property Centre (ESPC) property market intelligence report highlighted signs of “cooling” in the third quarter of the year, with sales volumes falling 9.6 per cent year on year, despite a 0.7 per cent increase in average selling prices.

The proportion of sales going to a closing date also fell, suggesting less competition between buyers and fewer properties attracting multiple offers. Similarly, the average percentage of sales which met the value of a property’s home report shrank by half a percentage point. Such activity, ESPC said, heralded a more “cautious phase.” Paul Hilton, ESPC’s CEO, said that while there were some locations where properties had increased sharply, such as the Scottish Borders, where average prices rose by as much as 11.9 per cent over the past three months, the general picture was less buoyant.

“There is no question however that the market is cooling and buyers are cautious, with declining volumes of sales that are likely impacted by mortgage rate pressures and concerns around affordability,” he told Scotland on Sunday. “Properties are still coming onto the market, albeit only at slightly higher volumes than last year, which would indicate some seller confidence, but for buyers, we’ve seen a trend of hesitancy over the past few months.

“We’ve also seen a pattern of sales falling through and chains collapsing at higher levels than expected, which would signal difficulties with buyers securing mortgages at the required levels and needing to exit a sale.” One sign of how affordability pressures are impacting the market can be found in Dunfermline, where ESPC said there has been a “significant downturn” in the number of four-bedroom properties being sold. By contrast, there has been a sharp spike in sales of two and three-bedroom houses in the same area.

“It indicates to us that buyers still very much want a certain location, and still very much want to buy a home or move up the property ladder, but perhaps their budget doesn’t stretch as far as they initially thought, and they sacrifice on space to stay in their preferred location,” Mr Hilton explained. Chancellor John Healey’s Budget may have attempted to address the fiscal squeeze being felt by households around the country, but save for the announcement of a new First Time Buyer ISA - due to be rolled out in 2029 - there was little to appease hard-pressed families in Scotland contending with mortgage costs.

A new scheme offering government-backed loans to households earning less than £110,000 - or £140,000 inside London - in order to purchase their first home, only applies in England. As such, all eyes are now turning to the Scottish Budget. Ms Wood stressed that the challenges facing homebuyers cannot be considered in isolation from those facing housebuilding firms, pointing to a “rapidly diminishing supply” of deliverable housing land, escalating construction costs, planning delays, and the burden of regulation.

She welcomed the recognition in the UK Budget of the record cost of building new homes, and said there needed to be equivalent recognition north of the border, coupled with a commitment to no further costly regulatory requirements. Others, such as Prof Maclennan, believe more fundamental changes are required. “Fixing Scotland's housing issues will require a much more serious reframing of how governments in London and Edinburgh, and at local levels, understand the housing system and how, in particular they tax it,” he insisted.

“Old politics and old silo governments won’t solve the problems. The civil service recognises this, our performative politics doesn’t.” Ms Murray, meanwhile, urged ministers to shift away from treating housing investments “purely as spending liabilities,” and to view the sector as integral to Scotland’s economy. “We need to see the Scottish government leverage non-profit housing providers and housing associations as key anchor institutions, fully recognising that every pound invested in social and affordable housing acts as a major multiplier for local supply chains and economic stability,” she said.

She also cautioned against “magic bullet” demand-side measures such as Mr Healey’s equity loan scheme for first-time buyers, which she said risked repeating the mistakes of past initiatives by inflating purchase prices without