Warning city house prices may tumble after mortgage slump

Published on Wednesday 4 June 2008 10:24

THE property market in the Capital is not immune from the impact of the credit crunch and homeowners should prepare themselves for prices falling, a leading lender warned today.

Crawford McGaughie, chairman of the Council of Mortgage Lenders Scotland, said there has been a real decrease in the number of buyers in the market as lenders tighten their policies – and it will have an impact on house prices.

His warning came as figures showed that the number of mortgages given out in Scotland plummeted by a fifth in the first quarter of this year.

But estate agents in the Capital insist Edinburgh will continue to avoid the drop in prices being seen in other parts of the UK.

Mr McGaughie, who is also senior manager of lending at the Dunfermline Building Society, said: "We've got to just admit that you cannot say any market is immune to the credit crunch – whether that is Edinburgh, Aberdeen or London.

"It is all about supply and demand. We would warn any homeowner that you cannot say your home will not fall in value.

"In Edinburgh, there are a number of fixed prices – it is one of the first cities to start to see that, and that is a sign that people are being realistic.

"There are less buyers and less mortgages. The premiums that were being achieved are not happening any more."

The Council of Mortgage Lenders' new data for Scotland showed there were 16,000 loans for houses in the first three months of 2008, compared to 20,000 in the first quarter of last year.

The drop came as all major high street lenders dropped their 100 per cent mortgages and tightened the criteria of who they lend to.

But the drop is less acute than the rest of the UK – where mortgages issued fell 40 per cent in the first quarter.

CML Scotland policy consultant Kennedy Foster said: "The shortage of mortgage funding has had a dramatic impact across the UK.

"However, to date, there has been less of an impact in Scotland than the rest of the UK as affordability is better here, meaning borrowers have been less affected by tightening in lending criteria."

But Ron Smith, chief executive of the Edinburgh Solicitors Property Centre, said:

"There is no doubt that, across the UK, the market is slowing. There are fewer mortgages to get but in terms of the availability of property in Edinburgh, so far we are bearing up okay.

"The major corrections will come in areas where there have been stratospheric rises – like London – or a huge oversupply – such as Birmingham.

"Edinburgh still has a strong economy, with good employment and demand for good property. There is no evidence of negative equity in Edinburgh."