Scotland’s housing market is holding up, but the foundations are fragile.
Scottish average house prices rose 1.6% annually to £187,000 in March 2026 — a modest but positive figure that sits well above the UK-wide annual house price change of 0.0% for the same period, suggesting Scotland has shown relative resilience compared to England. Semi-detached homes led the gains at 4.4%, while flats and maisonettes fell 1.4% — a split that likely reflects buyers stretching for more space while the entry-level flat market softens under affordability pressure.
However, the wider economic context gives reason for caution. The Bank of England base rate currently stands at 3.75%, and the MPC has signalled the likelihood of higher rates, with the possibility of what it described as “forceful” rises — a very different outlook from earlier in the year when cuts were broadly expected. Average two-year fixed mortgage rates have already risen to around 5.79% and five-year deals to 5.69%, driven largely by the conflict in the Middle East pushing up swap rates and energy costs. This makes Scotland’s modest house price growth all the more impressive, but also sets a ceiling on how much further it can go.
On the labour market, UK unemployment has risen to 5%, one of the highest rates since 2021, continuing a trend of rising unemployment since late 2022. Vacancies are at a five-year low and payrolled employment fell by 100,000 in April — not the conditions that typically support sustained house price growth.
Wages are providing some support. Total pay grew 4.1% year-on-year in Q1 2026, with real earnings up 0.8% — the strongest growth since late 2025. But real wage growth is close to stalling and is set to turn negative as the energy price shock feeds through to inflation. CPI fell to 2.8% in April 2026, down from 3.3% in March, which is welcome, but inflation is still well above the Bank of England’s 2% target and energy price pressures have not fully passed through yet.
In summary: Scotland’s housing market is currently outperforming the UK average, sustained by a tight supply of properties, stronger regional economies in areas like the central belt, and real wages that are — for now — just about keeping pace with prices. But rising mortgage rates, softening employment, and inflation that is still too high for the Bank of England to cut rates comfortably represent meaningful headwinds for the second half of 2026. First-time buyers in particular, paying an average of £154,000, remain exposed to any further rate increases. The most likely near-term scenario is continued modest price growth or mild stagnation — rather than any sharp correction — unless the Bank of England is forced into more aggressive tightening.