SCOTLAND is this weekend bracing itself for its first significant house price falls, with Britain's two biggest lenders poised to announce the first major slide in four years.
Nationwide is expected to reveal a quarterly fall of around 1% when it
publishes its latest house price survey on Tuesday, and will be followed within days by an announcement from Halifax of prices down at least by a similar amount.
Overall, values are predicted to have fallen back to the levels of last year, after a substantial slowdown in the market.
In Edinburgh, for example, the number of properties for sale has leapt by half compared with a year ago, to 6,100 according to the Edinburgh Solicitors Property Centre.
Of these, more than six out of 10 are now at fixed price, indicating that buyers are struggling to shift them. And those that are selling are taking two weeks longer to do so. Completions have fallen by 20%.
Where properties are selling via an 'offers over' arrangement, they are going at 10% above asking price on average in Scotland. In Edinburgh, premiums have fallen to 23% from 27%.
Nationwide is expected to confirm this downturn when it announces that house prices have fallen to around £148,000, where they stood this time last year, down from the peak of £151,178.
Halifax's data is predicted to show average property prices falling to £143,000, down from an average peak of £145,430. However, according to the Halifax this still leaves them higher than this time last year, when values stood at £140,195.
Before the year is out, Halifax chief economist Martin Ellis expects quarterly price falls in Scotland to have fed through to the annual inflation picture, which will turn negative. He said: "When you look at what is happening elsewhere and what we know are the trends, we expect annual house price inflation to be negative in Scotland in the second half of the year."
Nationwide's senior economist Martin Gahbauer added: "In some ways the Scottish housing market is less vulnerable than other parts of the UK, but it is still affected by the same shocks as the rest of Britain, such as the tightening in credit and dramatic fall in demand.
"Overall housing activity is at an all-time low and we know there is stock of unsold property building up. All of this points to the likelihood that prices will fall further."
But different kinds of property are being impacted in different ways, according to David Alexander of agents DJ Alexander. He said: "Quality property in a good location is still selling, but new developments are struggling. The modern stuff can be very difficult to shift."
The introduction of Home Reports in Scotland is thought to be exacerbating the problem. Once they become obligatory in December it will cost up to £1,000 to put a property on the market. This is thought to have partly triggered the flood of homes rushed onto the market and now languishing unsold.
Looking forward, though, the picture worsens. The gloomiest news yet came from the British Bankers' Association, which last week reported a 56% drop to 27,968 in demand for new mortgages from people who want to buy houses.
The only bright spot on the horizon came from the governor of the Bank of England, Mervyn King, when he was brought before MPs on the Treasury Select Committee on Thursday. He indicated he could live with a bit of inflation, signalling a reluctance to increase interest rates, which should have allowed homebuyers a sigh of relief.
In the short term, though, yet more grief is headed in their direction. Despite the governor's reassuring sentiment, several lenders hiked rates towards the end of the week, including the Woolwich, Abbey, Britannia, Alliance & Leicester and Co-op. Meanwhile, Bradford & Bingley pulled all its fixed and discounted deals.
HSBC has also upped the price on its Rate Matcher loan by increasing the minimum pay rate by 0.25% to 4.79% and doubling the maximum fee to £9,999, with a minimum of £599. As such, the true cost of new deals climbed to around 6.33%. And Halifax introduced a new administration fee of £245, on top of its normal arrangement charge.
By Friday, the average cost of a two-year fixed rate loan had climbed to 7.05%, its highest level for a decade. This marks a leap from 6.75% since the beginning of last week, and 6.61% since the start of the year, adding £410 to the annual cost of servicing a £100,000 loan.
However, if King's words did nothing to allay lenders' anxieties, they did ease market fears, with swap rates sliding to 6.2%, the lowest for a few weeks. If this downward movement continues, then mortgage deals should hopefully begin to improve.
Darren Cook of Moneyfacts said: "It takes about a fortnight for swap rate movements to feed through to mortgage prices, so right now we are seeing costs rise because of recent upward swings. I would expect that trend to be reversed in about another week or two, all other things being equal."
The full article contains 882 words and appears in Scotland On Sunday newspaper.
