The Scottish housing market is losing its steam, with a perfect storm of rising mortgage rates and slower price growth bringing activity to a near-standstill. Key indicators show that residential property sales are slowing down, with even first-time buyers struggling to secure mortgages at affordable rates. This trend is set against the backdrop of a UK-wide slowdown, as regional differences across the country reveal a story of reduced momentum.
More recent data further underscores this trend. Residential Land and Buildings Transaction Tax (LBTT) returns have fallen by 2.1% year-on-year in April and by 3.9% in May 2026, with new property listings down 8.9% in Edinburgh during the second quarter of 2026. Meanwhile, average advertised two-year fixed mortgage rates for a 75% loan-to-value mortgage have risen from 4% to 4.9% between January and May 2026.
House price growth has also softened, with the UK House Price Index reporting an average increase of just 3.3% over the financial year 2025-26 for Scotland – down from 3.9% in the final quarter of 2025 to 2% in the first quarter of 2026. This represents the weakest rate of growth since the second quarter of 2024 and falls below the long-run average of 2.7%. Regional variations are also coming to the fore, with Scotland mirroring a broader trend of more subdued growth seen in areas facing affordability pressures.
Mortgage activity for first-time buyers remains relatively buoyant, having increased by 6% during 2025-26. However, lending to home movers has risen by a smaller margin – just 4.4%. This suggests that potential buyers are increasingly hesitant to commit, possibly driven by concerns over mortgage rate hikes and affordability. The picture for renters is also shifting, with rents for newly let properties experiencing their first decline since late 2017, falling by 0.4% in the first quarter of 2026 – a more significant real-terms fall when adjusted for inflation.
Adding to the challenges facing Scotland's housing market is a continued decline in new housebuilding. There were just 17,268 new-build completions in the year to March 2026, down 10% on the previous year, while new-build starts fell by 4.4%. Affordable housing completions through the Affordable Housing Supply Programme also saw an 8% decline over the year to 6,832 – despite a rise in affordable housing starts and approvals of 37% and 42%, respectively.