Scotland weathers downturn better but UK mortgage loans fall 46%

Published on Thursday 21 August 2008 21:41

THE number of loans for mortgages slumped by more than a third in the second quarter of the year, figures published yesterday revealed.

However, the Scottish mortgage market continues to fare better than the rest of the UK, the data showed.

According to the Council of Mortgage Lenders (CML), the number of loans for house purchase in Scotland slumped 34 per cent year on year to 18,500 in the second quarter.

That compared to a 46 per cent year-on-year slump for the UK as a whole.

And the figure was an 18 per cent increase from the first three months of the year, against a UK-wide 5 per cent quarterly rise.

The relatively moderate pace of decline north of the Border means Scotland now accounts for 12 per cent of all loans for house purchase in the UK, up from 8 per cent at the beginning of 2007.

There were 19,000 remortgage loans worth 1.9 billion, down 5 per cent in the first three months and 22 per cent lower than the second quarter last year. Martin Ellis, chief economist at HBOS, said the CML's figures tallied with the bank's own expectations. He said: "The Scottish market is in a downturn, as it is not immune from the forces causing the decline, but it is less pronounced than in the rest of the UK."

Despite a sharp increase in Scottish house prices in the past five years, the longer term gains have been smaller, so property is relatively more affordable north of the Border, said Ellis.

But Ellis said the favourable comparison with the UK position should not be cause for complacency.

"There is going to be a downturn and it is not going to be insignificant," he said.

"Relative to the overall UK position things look better, but we can't say it's not a serious deterioration because it is."

First-time buyer numbers continue to dwindle, said the CML, with 6,600 loans in the second quarter representing a 31 per cent drop from the same period last year.

The proportion of loans to first-time buyers in Scotland in Scotland fell from 40 per cent in the first quarter this year to 36 per cent in the second three months.

And the average first-time buyer put down a 13 per cent deposit in the second quarter, up from 10 per cent last year.

"The pressures on first-time buyers have been there for the last few years because of double-digit house price inflation," said Ellis. "Over time, they will benefit from falling house prices, but there won't be a big increase in first-time buyers for at least a couple of years."

David Watson, head of independent mortgage broker Savills Private Finance's Edinburgh office, said the CML's figures reflected a lack of confidence in the Scottish housing market. He said: "The situation is likely to get worse before it improves."

Savills has predicted that Scotland, along with London and the South East, will lead the eventual housing market recovery because of its higher levels of housing market equity and stronger household purchasing power than in other areas.