Housing market gloom deepens - but Scots still more upbeat than rest of UK

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Scottish homeowners are braced for fresh house price falls, as confidence in the property market declines, new research has suggested.

The proportion of those expecting prices in their area to climb over the next six months has dropped to 63 per cent, down from more than 70 per cent three months ago.

The property search website Zoopla said UK homeowner confidence in the property market outlook had hit a two-year low in December, with a third expecting further price falls in the next six months, compared with a quarter three months ago.

But housing market sentiment is higher in Scotland than across the UK as a whole, the survey found, with just 54 per cent of English homeowners and 49 per cent in Wales expecting house prices to go up in the first half of 2011.

Optimism is at its lowest in Northern Ireland, where only 42 per cent believe prices will go up over the coming months.

The report comes days after the Bank of England said there had been a sharp fall in demand for home loans in the final three months of 2010. Its quarterly credit trends report revealed the biggest drop in mortgage demand since the end of 2008 and predicted demand would fall further this year.

Banks and building societies attributed the decline to a weakening in house prices and concerns over the impact of the government's austerity measures.

Few economists expect the housing market to bounce back this year. Capital Economics is predicting a further 10 per cent fall in house prices in 2011, while the Royal Institution of Chartered Surveyors forecasts a 2 per cent drop. Estate agents Knight Frank and Savills both predict UK house price falls this year, by 6 and 3 per cent respectively.

The average homeowner expects house prices to rise by 1.9 per cent over the next six months, the Zoopla survey found, compared with an average prediction of a 3 per cent rise three months ago.

Yet many people are more optimistic about the value of their own homes than the prospects for their area, with the average homeowner predicting the value of their property will go up by 2.5 per cent over the next six months.

Fewer people intend to spend money on home improvements this year. Just 37 per cent of homeowners said they would carry out work on their property in the next six months, compared with 48 per cent a year ago.

Nicholas Leeming, commercial director of Zoopla, said: "The uncertainty around the impact on the overall economy in 2011 of the austerity measures and the continuing drought in mortgage finance availability created a toxic combination for housing market confidence in late 2010."There is every reason to expect confidence to grow as this year progresses providing the economic outlook doesn't worsen and banks start to loosen their lending criteria."

But homeowners see few signs of an improvement in the availability of mortgage finance, according to Zoopla. Only 8 per cent of homeowners believe it is easier to get financing now than it was three months ago.