Scots homeowners warned that few will escape negative equity next year

Published on Saturday 13 December 2008 13:02

HOMEOWNERS across Scotland are being warned that next year they are likely to face negative equity for the first time in more than two decades.

As the housing market north of the border continues to rack up double-digit declines, property experts say Scotland will almost certainly fall victim to widespread negative equity despite avoiding it during the last downturn in the early 1990s.

They warn the Scottish property market has been caught off guard by the speed and depth of this recession, and few homeowners, particularly those who bought at the height of the boom, will avoid seeing the value of their houses fall below the size of their mortgage. "Ridiculous" lending such as 100%-plus mortgages in the run-up to the credit crunch is also being blamed.

Despite efforts to play down the chances of negative equity by the Council of Mortgage Lenders earlier this year, Willie Hunter, a director of the ESPC group of solicitors, said it is now almost inevitable, even in Edinburgh, which was believed to have one of the most resilient markets in the country. "There's more likelihood it'll happen this time round due to the depth and severity of the drop.

"It's a natural consequence of the slowing market and a result of some of the ridiculous lending that went on," he said.

Bruce Cartwright, a partner with PricewaterhouseCoopers in Scotland, is equally pessimistic: "We didn't really see negative equity in 1992/1993 as we did in the south, but I think we'll see it this time."

It is expected that certain areas in Glasgow such as Sighthill will be worst hit.

Negative equity will cause particular problems for homeowners who need to move over the next 12 months, or for those Scots who are expected to lose their jobs next year and will struggle to meet their mortgage repayments.

But property experts insist there is no cause for alarm and the market will bounce back once the crisis in the banking sector abates. They are also confident that the housebuilding sector, which has seen a string of administrations in recent weeks, will start to recover from 2010 as the UK's housing shortage drives up demand.

Cartwright said: "The housebuilding market will come back, there is no doubt. We simply do not have enough housing."

Hunter said: "Negative equity is only really of any relevance if you are in a situation where you have to move. The important thing here is people are required to take a long-term view. We shouldn't be pushed into looking at the very short term."

Hunter still expects Scotland to fare better than the south of England. He urged the Government to look at further measures to boost the market, including introducing a long-term ban on stamp duty for first-time buyers on properties with a value up to 250,000.

The latest figures from ESPC show the average house price in Edinburgh fell 12% last month to 191,271. The number of houses sold was a staggering 70% down on November 2007.