Downing Street moves could set Scots house prices falling

SCOTTISH house prices could be forced back down after a surge in the number of properties being put up for sale, a leading estate agent has warned.

And the capital gains tax (CGT) increase proposed by the new coalition government this week could accelerate the increase in supply as property investors and second home owners rush to sell at the current flat rate of 18 per cent.

The rise in the number of properties going on the market reverses an imbalance of supply and demand that pushed prices up last year, according to Scott Brown, estate agency partner at Warners property solicitors in Edinburgh.

"The number of new property listings is currently double the number of sales in Edinburgh and, while this is a relatively stable state for the market, there could be trouble ahead if listings continue to rise," said Brown.

As more people enter the market, the market could reach saturation point unless the extra supply is not mirrored by greater demand.

"When this happens, it's possible that house prices will decrease as sellers will be competing for buyers," said Brown.

"That said, there is a normally a higher level of listings at this time of year and I remain positive in my outlook for the property market throughout Scotland as a whole."

Homeowners are increasingly prepared to put their properties on the market as it becomes clear that house prices are unlikely to rise significantly, if at all, in the near future.

The coalition agreement set out by the new government this week pointed to an increase in CGT to put it back in line with income tax, a move that will prompt property investors to sell and put others off buying investment properties.

Meanwhile Lloyds Banking Group has introduced restrictions on its interest-only mortgages to reduce the risk of shortfalls at the end of the repayment term.

Loans of more than 500,000 will no longer be available on an interest-only basis, with those borrowing more limited to capital repayment loans.

A spokeswoman said: "This is because borrowing such a huge amount is a significant commitment – and therefore stands to reason that any shortfall would be a substantial amount. Therefore, allowing it on repayment only is the only way we can be sure the capital can be repaid."

Borrowers on interest-only deals – which account for about a fifth of the mortgage market – also face a levy of 0.2 percentage points, while the bank also said it would no longer accept anticipated windfalls (such as from property sales or inheritances) as the basis of a repayment plan.

Lloyds said interest-only borrowers would in the future be asked for proof of their repayment plan not only at application but throughout the life of the mortgage.