House prices grind to a halt in squeeze

HOUSE prices in Scotland are now at a virtual standstill with the global credit crunch and the mortgage squeeze starting to affect owners throughout the country.

Figures to be published this week will reveal that house price inflation in east central Scotland, where double-digit rises have been common for the past eight years, dropped to less than 2% in the first quarter of 2008.

This includes the hotspot capital Edinburgh and compares with 10% for the same period last year. House price growth last fell to such levels in 1992/93 when Britain was in the grip of recession and 15% interest rates.

In the west of Scotland, centred around the Glasgow area, house price inflation has dipped to below 3% for the first time since December 2000.

The nationwide slowdown is also affecting the northeast around Aberdeen, where owners have also enjoyed double-digit rises for several years.

Analysts said house price inflation in many parts of the country was now "static", largely because of the effects of the credit crunch and a growing mortgage famine.

Buyers were becoming more scarce because they couldn't afford to enter the housing market, trade up to bigger properties or obtain mortgages, analysts said. Some sellers were reluctant to put their homes on the market, reducing supply, because they were no longer attracting the big premiums over the asking price experienced until recently.

Anyone wanting a mortgage, even those at the top end of the market, will now have to wait longer for their applications to be processed. And in an increasing number of cases deals are falling through, with some analysts reporting that up to one in three mortgage buyers are discovering there is no money available.

In a further setback, the UK's sixth largest building society, Skipton, has taken the unusual step of starting to charge £800 for a variable rate home loan while Halifax is demanding a minimum 5% deposit.

Housing economists said if the downward trend continued into negative equity there could be a rash of owners defaulting on loans, leading to house repossessions.

Professor Gwilym Pryce, of the Urban Studies Department at Glasgow University, said: "In real terms we are at zero growth now and what happens next depends on the wider economy.

"It may be that the market bottoms out at zero and then turns back up again, but if the credit crunch feeds through to recession then that could have en effect on repossessions.

"The high end of the market will probably be OK, but my worry is the lower end. Many more people own homes in Scotland than they did in the early 1990s and the level of mortgage indebtedness has been increasing. The bottom end of the market could be flooded with people wanting to sell."

The biggest surprise in the figures from the Edinburgh and the Glasgow Solicitors Property Centres was the dramatic fall in house price inflation in the capital, which has led the boom in home inflation in Scotland for the past year.

David Marshall, the business analyst at the ESPC, said: "House price inflation has dropped to between 1% and 2% in the first quarter. That is down from 10% for the same period last year, so that is a significant slowdown."

The last time inflation rates were so low – below 1% – was in 1992/93. "This is the slowest start to the year since then.

"It's pretty much a static market compared to what we have seen over the last four or five years, when with the exception of 2005 there was annual growth of 15% across the board."

Marshall said most other areas of Scotland were also likely to be slowing to much lower rates than before. "1% or 2% is likely to be the national average."

In Glasgow, house price inflation has plummeted from around 8% at the end of December to less than 3% now.

Mark Hordern, marketing manager at the GSPC, said: "The start of the year was quite positive in the market, given the worries about the credit crunch, but the effects had not started to kick in at that stage. In the last two or three weeks the market has slowed noticeably.

"That's not as a result of lack of demand. People still want mortgages to buy new homes, but it is increasingly difficult to get a mortgage to allow you to pursue the purchase. Effectively there are no 100% mortgages any more."

Last week saw another turbulent seven days in the mortgage markets, with the number of mortgage products declining by 13%. The number of mortgage products available to borrowers has declined by two-thirds since last July, with more than 800 withdrawn by lenders. On Friday, Halifax, Britain's biggest mortgage lender, announced it would be increasing rates for borrowers with smaller deposits.

Builders urge lenders to release more cash to first-time buyers

Natalie Thomas and Jeremy Watson

HOUSEBUILDERS in Scotland are holding emergency talks with mortgage lenders to persuade them to release more funds to help first-time buyers.

The industry is concerned that demand for starter homes will drop sharply because of the change in lending conditions caused by the credit crunch and the withdrawal of thousands of mortgage products.

Mortgages of 100% and above of the value of a home – popular with first-time buyers – have virtually disappeared and lenders are now demanding deposits of up to 20% of the purchase price.

There is a growing sense of unease among housebuilders who concentrate on city centre flats and smaller homes as they fear they will be left with a glut of unsaleable properties.

Proposals to help first-time buyers with grants of £2,000, first pledged in the SNP's election manifesto, have been ditched for being too small.

John Slater, group managing director of Stewart Milne homes division, one of Scotland's leading new home builders, confirmed they were among those talking to the major lenders about "making sure we're practical and responsible in the way we lend to first-time buyers".

Another housebuilder, who declined to be named, said it was critical that the problems facing the first-time buyers market were addressed urgently. "It is vital to the economy that this part of the market is actively supported."

Housing experts said the industry was taking the right approach. Mark Hordern, marketing manager for the Glasgow Solicitors' Property Centre, said: "The builders are absolutely right to talk to the lenders to make sure that finance is available for the buyers of their properties.

"The irony is that, as the housing market has now slowed, it is an outstanding time for first-time buyers to buy. They are not facing the competition from buy-to-let landlords and they will not have to pay as much as previously. But because they have to find bigger deposits, they cannot get the mortgages. There are no 100% mortgages any more."

"It's very frustrating for them and if they can't raise the deposit then they may have to go the 'Bank of Mum and Dad.' Even that is not an option for some."